**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K**

** **

| x      | **ANNUAL REPORT UNDER  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|--------|---------------------------------------------------------------------------------------------------|
|   | **For the  fiscal year ended December 31, 2007**                                        |
| o      | **TRANSITION REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom            to             **

 

**Commission filenumber 333-124924**

 

**155 EastTropicana, LLC155 East Tropicana Finance Corp.**

(Exactname of registrant as specified in its charter)

 

| **Nevada  Nevada**                                              | ** ** | **20-2546581  20-1363044**           |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

| **115 East Tropicana Avenue, Las  Vegas,**                     | ** ** | **NV 89109** |
|----------------------------------------------------------------|------------|--------------|
| (Address and telephone number of principal  executive offices) |       | (Zip Code)   |

 

**(702) 597-6076**

Registrant’s telephone number, including area code: 

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| **Title of each class** | ** ** | **Name of each exchange on which registered** |
|-------------------------|------------|-----------------------------------------------|
| None.                   |       |                                          |

 

Securities registered pursuant to Section 12(g) ofthe Act:

 

**None.**

(Title of eachclass)

 

 

(Title of eachclass)

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o No x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o  No x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x  No o

 

Indicate by check mark ifdisclosure or delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. Yes o  No x

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer”, “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. :

 
| Large accelerated filer  o |   | Accelerated filer o          |
|----------------------------|--------|------------------------------|
| Non-Accelerated filer x    |   | Smaller reporting  company o |

(Do not check if asmaller reporting company)

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o No x

 

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold, orthe average bid and asked price of such common equity, as of the last businessday of the registrant’s most recently completed second fiscal quarter. NotApplicable.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

Not applicable.

 

 

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**TABLE OF CONTENTS**

 
| ** **         | ** **                                                                                                                         | ** ** | **Page**   |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|               |                                                                                                                               |       |       |
| **PART I**    | ** **                                                                                                                         | ** ** | ** ** |
| ITEM 1.            | Business.                                                                                                                          |       | 2          |
| ITEM 1A.           | Risk Factors.                                                                                                                      |       | 13         |
| ITEM 1B.           | Unresolved Staff  Comments.                                                                                                        |       | 27         |
| ITEM 2.            | Properties.                                                                                                                        |       | 28         |
| ITEM 3.            | Legal Proceedings.                                                                                                                 |       | 28         |
| ITEM 4.            | Submission of  Matters to a Vote of Security Holders.                                                                              |       | 28         |
| **PART II**   |                                                                                                                               |       |       |
| ITEM 5.            | Market for  Registrant’s Common Equity and Related Stockholder Matters                                                        |       | 28         |
| ITEM 6.            | Selected Financial  Data.                                                                                                          |       | 29         |
| ITEM 7.            | Management’s  Discussion and Analysis of Financial Condition and Results of Operation.                                        |       | 31         |
| ITEM 7A.           | Quantitative  and Qualitative Disclosures About Market Risk.                                                                       |       | 46         |
| ITEM 8.            | Financial  Statements and Supplementary Data.                                                                                      |       | 47         |
| ITEM 9.            | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure.                                             |       | 84         |
| ITEM 9A.           | Controls and  Procedures.                                                                                                          |       | 84         |
| ITEM 9B.           | Other Information.                                                                                                                 |       | 85         |
| **PART III**  |                                                                                                                               |       |       |
| ITEM 10.           | Directors,  Executive Officers and Corporate Governance.                                                                           |       | 86         |
| ITEM 11.           | Executive  Compensation.                                                                                                           |       | 89         |
| ITEM 12.           | Security  Ownership of Certain Beneficial Owners and Management.                                                                   |       | 93         |
| ITEM 13.           | Certain  Relationships and Related Transactions.                                                                                   |       | 95         |
| ITEM 14.           | Principal  Accounting Fees and Services.                                                                                           |       | 97         |
| **PART IV**   |                                                                                                                               |       |       |
| ITEM 15.           | Exhibits and  Financial Statement Schedules.                                                                                       |       | 98         |
| SIGNATURES         |                                                                                                                               | 99         |
|               |                                                                                                                               |       |
| EXHIBIT INDEX      |                                                                                                                               | 103        |
| Exhibit 10.44 | Bonus Agreement between  155 East Tropicana, LLC and Deborah J. Pierce dated November 17, 2007.                                    |       |       |
| Exhibit 31.1  | Certification Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                      |       |       |
| Exhibit 31.2  | Certification Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                      |       |       |
| Exhibit 32.1  | Certification Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |       |       |
| Exhibit 32.2  | Certification Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |       |       |

 

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# **PART I**

# ** **

## **ITEM 1.**                             BUSINESS.

## ** **

Unless the context indicates otherwise, allreferences to the “Company”, “155”, “we”, “our”, “ours” and “us” refer to 155East Tropicana, LLC.

 

**Forward-looking Statements**

 

Certain information included herein containsstatements that may be considered forward-looking, such as statements relatingto projections of future results of operations or financial condition,expectations for our casino, and expectations of the continued availability ofcapital resources. Any forward-looking statement made by us necessarily isbased upon a number of estimates and assumptions that, while consideredreasonable by us, is inherently subject to significant business, economic andcompetitive uncertainties and contingencies, many of which are beyond ourcontrol, and are subject to change. Actual results of our operations may vary materially from anyforward-looking statement made by us or on our behalf.  Forward-looking statements should not beregarded as representation by us or any other person that the forward-lookingstatements will be achieved.  Readers arecautioned not to place undue reliance on any forward-looking statements, whichspeak only as of the date thereof. We undertake no obligation to publiclyrelease any revisions to such forward-looking statements to reflect events orcircumstances after the date hereof. Some of the contingencies and uncertainties to which any forward-lookingstatement contained herein are subject to include, but are not limited to,those set forth below in the heading “ITEM 1A. Risk Factors.”

 

**Corporate Organization**

** **

We were formed in June 2004 to acquirethe Hôtel San Rémo Casino and Resort (the “Hôtel San Rémo”), a casino hotellocated in Las Vegas, Nevada from Eastern & Western Hotel Corporation(“Eastern & Western”).  TheHôtel San Rémo was renovated and re-branded and is now known as Hooters CasinoHotel.  Our common membership interestsare held two-thirds through Florida Hooters LLC and one-third through EW CommonLLC.

 

Florida Hooters LLC is a joint venturebetween Hooters Gaming LLC and Lags Ventures, LLC.  Hooters Gaming LLC is owned by the holders oflicenses to operate Hooters restaurants in the Tampa Bay, Chicago and Manhattanareas as well as for wholesale foods, calendars and Nevada hotel/gaming, andincludes most of the original founders of the Hooters brand.  Lags Ventures, LLC is owned by a holder ofthe license rights to Hooters restaurants in south Florida.  Pursuant to these license rights, the ownersof Florida Hooters LLC operate 40 Hooters restaurants, publish Hooterscalendars, and operate a Hooters food business. The owner of Lags Ventures, LLC is also the founder of the Dan Marinoconcept restaurants and owns and operates two Dan Marino concept restaurants.

 

EW Common LLC was formed to hold Eastern &Western’s membership interest in us. Eastern & Western owns 90% of EW Common LLC while ourPresident, Michael Hessling, owns the balance. Eastern & Western is beneficially owned by Sukeaki and ToyorokuIzumi.  Eastern & Western andits affiliates owned the Hôtel San Rémo from November 1988 until ouracquisition of the hotel casino in August 2004.

 

Our affiliates have granted us assignments ofcertain licenses pertaining to the use of the Hooters brand as well as the DanMarino, “13” Martini Bar and Pete & Shorty’s concept restaurants,solely for the purposes of allowing us to operate a Hooters Casino Hotellocated at our property.  Pursuant to theHooters license assignment, we are required to pay the owner of the Hooters trademark,HI Limited 

 

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Partnership, a royaltyfee.  For more information, see “Item 1.Business—Intellectual Property” and “Item 13. Certain Relationships and RelatedTransactions.”  Hooters of America, Inc.is the general partner of HI Limited Partnership and we refer to HI LimitedPartnership and Hooters of America, Inc. collectively as “Hooters ofAmerica.”  The original founders of theHooters brand sold the trademark rights (excluding certain rights they retainedfor themselves) to Hooters of America in 2001. As a result, Hooters of America is the trademark owner of the Hootersbrand and the operator and franchisor of Hooters restaurants.  We are not affiliated with Hooters ofAmerica.

 

Before we received our necessary gaminglicenses and prior to November 1, 2005, the Hôtel San Rémo was operated byEastern & Western pursuant to two separate leases with us.  These leases were terminated when we receivedour gaming license.  The following chartillustrates our corporate structure:

 

 

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(1)          155 East Tropicana FinanceCorp., which has no assets or operations, was formed for the sole purpose offacilitating the issuance of our 8 3⁄4 % Senior Secured Notes due 2012.

 

**AssetPurchase Agreement**

** **

On April 30, 2007, theCompany entered into a definitive Asset Purchase Agreement (the “Agreement”)with Hedwigs Las Vegas Top Tier, LLC (the “Buyer”), and on May 3, 2007,the Company entered into a definitive Casino Operations Lease (the “Lease”)with the Buyer. On May 7, 2007, the Company entered into a First Amendmentto Asset Purchase Agreement with the Buyer. Additionally, on August 8,2007, the Company entered into a Second Amendment to Asset Purchase Agreementwith the Buyer.

 

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Under the terms of theAgreement, as amended, the Buyer has offered to purchase essentially all of theassets of the Company for a purchase price of $95.0 million in cash, thepayment of certain accrued royalties, and the assumption of certain outstandingliabilities of the Company. The Buyer will also be responsible for the Company’s$130.0 million in principal amount of 8.75% Senior Secured Notes due 2012. Inconnection with the Agreement, as amended, the Company has received threenonrefundable deposit payments from the Buyer, including (1) a $1.0million payment on May 7, 2007, (2) a $0.5 million payment on August 14,2007 and (3) a $1.5 million deposit payment on November 26, 2007. Alldeposits will be applied against the purchase price if the transaction closes.The Agreement, as amended, provides for a closing date on or before December 31,2007, which the Buyer may extend under certain conditions by paying a $0.5million extension fee for each month the Agreement is extended. Four extensionfees of $0.5 million each were received by the Company on December 31,2007, January 31, 2008, February 29, 2008 and March 31, 2008. Theextension fees paid are not refundable and will not be credited toward thepurchase price. Notwithstanding the Buyer’s right to extend the closing date,the Company may terminate the Agreement if the closing has not occurred on orbefore June 30, 2008.

 

Asprovided in the Agreement, the closing will be subject to the completion of duediligence, financing, and licensing, among other customary conditions. Therecan be no assurance that (i) the conditions to closing under Agreementwill ever be satisfied, or (ii) any transaction contemplated under theAgreement will be consummated, or (iii) if a transaction is consummated,it will be on the same or similar terms as currently provided under theAgreement.

 

**Hooters Casino Hotel**

** **

We purchased the former Hôtel San Rémo in August 2004and commenced renovations in March 2005. On February 3, 2006 the newly renovated and rebranded HootersCasino Hotel opened to the public .  Ourproperty is located one-half block east of the intersection of Tropicana Avenueand Las Vegas Boulevard, a major intersection on the Las Vegas strip (“TheStrip”) that is within walking distance to approximately 25,000 hotel rooms.

 

Prior to the renovation, Hôtel San Rémofeatured 711 hotel rooms, including 17 suites, and an approximately 24,000square-foot casino with 532 slot and video poker machines, 16 table games, anda sports book. The Hôtel San Rémo remained open during our renovation, althoughonly on a limited basis from late October 2005 until we opened theproperty as the Hooters Casino Hotel on February 3, 2006.

 

The Hooters Casino Hotel features the famousHooters décor, and the Hooters brand is a prominent component of the facility.Our renovations have refreshed and upgraded the property, and provided severalnew restaurant offerings.  The HootersCasino Hotel features:

 

·             an approximately 29,000 square foot “Hooters” themedcasino floor with approximately 679 state-of-the-art slot and video pokermachines and 33 table games;

 

·             696 newly renovated hotel rooms, including 17suites;

 

·             a tropical pool area featuring beach sand, palmtrees, lagoon style waterfall, and Nippers Pool Bar;

 

·             distinctive dining andentertainment options, including:

 

·             a world famous Hootersrestaurant;

 

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·             Dan Marino’s, a restaurantfeaturing American cuisine which has offered 24 hour dining since October 24,2007;

 

·             Night Owl Club featuringnightly entertainment;

 

·             The Bait Shoppe, a retailstore conveniently located at poolside selling Hooters and Pete &Shorty’s branded merchandise;

 

·             Porch Dogs, a Caribbeanthemed casual indoor-outdoor club offering music and cocktails;

 

·             Pete & Shorty’sTavern, a casual and comfortable restaurant bar featuring a sports book and apoker room;

 

·             The Lobby Bar, a 24-hour barlocated at the entrance to the casino, featuring service by the world famousHooters girls.

 

·             Splurge, a retail store selling Hooters brandedmerchandise.

 

·             SASS, a day spa, salon and workout facility.

 

**The Renovation**

** **

The renovation of the Hooters Casino Hotelcommenced in March 2005, and the Hooters Casino Hotel opened to the publicon February 3, 2006.  Our strategyis to build on Hooters’ reputation as a casual, relaxed, fun, and welcomingenvironment.  We believe that Hooters’strong brand name recognition and our favorable location will generate visitortraffic.  The key elements of ourrenovation of the property are:

 

*Main Entrance.*  We renovated the main entrance to adopt theHooters décor of natural wood, tin, and orange. The Hooters brand is a prominent component of the main entrance and wereplaced the existing doors with new 12-foot high clear glass doors to make thecasino area clearly visible from the outside and the immediate entrancearea.  We also made improvements to thetraffic flow around the entrance areas that we expect will improve pedestriantraffic into the casino.  In addition, weadded significant new signage to the property, including a large marquee infront of the property.  We anticipatethat these improvements will result in more walk-in visitors to the casino andour other attractions and amenities.

 

*Casino.*  We expanded and renovated our casino from approximately24,000 square feet to approximately 29,000 square feet and designed the casinoto be more inviting and to better use the available space, allowing us to addnew gaming equipment.  We now feature 679state-of-the-art slot and video poker machines, 30 table games, sports book,and a poker room.  To make the casinomore inviting, we raised the elevation of the ceiling in some areas for a moreopen feeling, updated the ceiling with décor of natural wood, tin, and orange,re-carpeted the gaming area with new Hooters-themed carpet and installed woodfloor in the surrounding area.  Inaddition, adjacent to the entrance, we added a Hooters bar, serving beer andcocktails to casino guests, and a retail store, selling Hooters brandedmerchandise.

 

*Dining and Entertainment Options.*  We offer distinctive dining and entertainmentoptions, including the 200-seat Hooters Restaurant, the 287-seat Dan Marino’sFine Food and Spirits, the 100-seat Pete & Shorty’s Tavern, the200-seat Porch Dogs, and a 350 person occupancy Nippers Pool Bar. The “13”Martini Bar and Dam Restaurant were both closed in 2007 and the Night OwlShowroom opened. To house our new Dan Marino’s restaurant, we built a newbuilding adjacent to the main entrance. The restaurant is visible from both outside and inside theproperty.  In addition, Dan Marino’srestaurant features a bar that serves customers from both the casino floor andthe restaurant.

 

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*Hotel.*  We significantly remodeled our hotelrooms.  The 696 newly renovated roomsfeature a Caribbean/Florida theme and new furniture, carpets, painted texturedwalls, lighting, art-work and bedspreads. We also renovated the bathrooms with new paint, fixtures, and upgradedamenities.  The common hotel areas wereupdated with new carpet, paint, doors and signage.

 

*Pool Area.*  We expanded and upgraded the existing poolarea to include tropical heated pools with beach sand, palm trees, threein-ground Jacuzzis, lagoon style waterfalls and Nippers Pool Bar.

 

We spent approximately $53.0 million in cashexpenditures for renovations and operating equipment and $10.1 million inpre-opening expenditures in 2005 and 2006. During the renovation, we continued to keep the existing Hôtel San Rémooperations open, although only on a limited basis from late October 2005until the grand opening of the Hooters Casino Hotel on February 3, 2006.

** **

**Competition**

** **

We face competition in the market in which weare located as well as in or near any geographic area from which we attract orexpect to attract a significant number of our customers.  As a result, our casino property faces directcompetition from all other casinos and hotels in Las Vegas and to a lesserextent, in the Mesquite, Laughlin, Reno and Lake Tahoe areas of Nevada and inAtlantic City, New Jersey, and in the California gaming market, as well as fromother forms of gaming.

 

*Las Vegas, Nevada.*  The hotel casino industry in Las Vegas ishighly competitive.  The Hooters CasinoHotel competes on the basis of overall atmosphere, range of amenities, level ofservice, price, location, entertainment offered, theme and size.  The Hooters Casino Hotel competes withnumerous resorts and hotel casinos on The Strip and in downtown Las Vegas, aswell as a large number of hotels and motels in and near Las Vegas.  Many competing properties have themes andattractions which draw a significant number of visitors and compete with ourproperty for hotel and gaming customers. Some of these facilities are operated by companies that have more thanone operating facility, and many have greater name recognition and financialand marketing resources than us and market to the same target demographic groupas we do. Additional major hotel casinos and significant expansion of existingproperties, containing a significant number of hotel rooms and attractions, areexpected to open in Las Vegas within the coming years.  We seek to differentiate the Hooters CasinoHotel from other major Las Vegas hotel casino resorts by concentrating on the design,atmosphere, personal service and amenities that we provide and the added valueof the Hooters brand.

 

*California Gaming Market.*  Voters in California approved an amendment tothe California constitution in 2000 that gave Native American tribes in Californiathe right to offer a limited number of slots machines and a range ofhouse-banked card games.  A number ofNative American tribes have already signed, and others have begun signing,gaming compacts with the State of California. As of March 2007, 66 compacts have been approved by the federalgovernment and casino-style gaming is legal in California on those triballands.  According to the National IndianGaming Commission, as of January 2007, there are approximately 56operating tribal casinos in California. In addition, several Native American tribes in California have reachedagreements with the State of California that allow for an increased number ofgaming machines within the facilities operated by such tribes in exchange for arevenue-based payment to the state.  Thecompetitive impact on our gaming establishments from the continued growth ofgaming in California cannot be definitively determined but, depending on thenature, extent and location of the growth, the impact could be material.

 

*Other Forms of Gaming.*  We also compete, to some extent, with otherforms of gaming on both a local and national level, including state-sponsoredlotteries, Internet gaming, dockside casinos, riverboat casinos, on- andoff-track wagering and card parlors.  Therecent and continued expansion of legalized 

 

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casino gaming into newjurisdictions throughout the United States has increased competition faced byus and will continue to do so in the future. Additionally, if gaming were legalized or expanded in jurisdictions nearany geographic area from which we attract or expect to attract a significantnumber of our customers, we could face additional competition which could havea significant adverse impact on our business, financial condition and resultsof operations.  There can be no assurancethat we will be able to continue to compete successfully in our existingmarkets or that we will be able to compete successfully against any such futurecompetition.

 

**Intellectual Property**

** **

We have entered into an assignment agreementwith Florida Hooters, LLC which grants us the right to use certain intellectualproperty in connection with the operation of the Hooters Casino Hotel.  The intellectual property covered by theseagreements is described below. Additionally, we have been granted a royalty-free license to the Pete &Shorty’s mark.  For more detailedinformation, see “Item 13. Certain Relationships and Related Transactions.”

 

*Hooters Trademark.*  The Hooters trademark and logo insignia arethe exclusive property of Hooters of America. We have an exclusive license to use the Hooters brand in connection withgaming, casino or combined hotel, gaming and casino operations solely at theHooters Casino Hotel property.  FloridaHooters, LLC originally obtained the license through an assignment from HootersGaming Corporation, an affiliated entity under common ownership with HootersGaming LLC.  The underlying licenseagreement was executed between Hooters of America and Hooters GamingCorporation, and granted to Hooters Gaming Corporation an exclusive license touse the licensed intellectual property in connection with gaming, casino orcombined hotel, gaming and casino operations within the State of Nevada.Hooters Gaming Corporation retained any and all rights and obligations in thelicensed intellectual property pursuant to the license agreement for alllocations within Nevada other than the Hooters Casino Hotel.  Under an Affirmation and Acknowledgementagreement between Hooters Gaming Corporation and 155 East Tropicana, LLC,Hooters Gaming Corporation has agreed not to operate (or license or assign itsrights to operate) another Hooters Casino Hotel on The Strip, until such timeas none of the Notes is outstanding. Additionally, under the agreement, Hooters Gaming Corporation agreed notto operate (or license or assign its rights to operate) another Hooters CasinoHotel in Clark County, Nevada for a period of four years from the issuance ofthe Notes or such earlier time as none of the Notes is outstanding.

 

Combined hotel, gaming and casino operationscontemplated under the license agreement include, but are not limited to, theright to provide the following within the facility: (i) room service; (ii) restaurantoperations, subject to the consent of Las Vegas Wings, Inc., as thefranchisee of the rights to operate Hooters restaurants in Nevada (whichconsent has been obtained); (iii) retail sales facilities in which thirdparties are permitted to conduct retail sales of all kinds; and (iv) entertainmentfacilities, subject to certain quality standards.  In connection with such operations, we havethe right to (i) sell approved merchandise bearing some or all of thelicensed intellectual property, (ii) use the licensed intellectualproperty and Hooters Girls to promote, market, and advertise such facilitiesworldwide, and (iii) include Hooters Girls as part of any facility staff.

 

We are required to pay Hooters of America anannual fee equal to $500.  In addition,we pay to Hooters of America a royalty in an amount equal to two percent (2%)of all net revenues generated in connection with licensed activities (whichincludes net revenues generated in connection with hotel, casino, andrestaurant operations).  We are alsorequired by the license agreement to maintain certain quality standards for theuse of the Hooters brand.

 

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*Hooters Restaurant Concept.*  Pursuant to a consent from Las Vegas Wings, Inc.,we have the right to use the Hooters restaurant concept at the hotelcasino.  The consent permits worldwidepromotion, marketing and advertising of the hotel casino and its services.

 

*Dan Marino Concept Restaurants.*  We have an exclusive license to use certainintellectual property to operate and promote restaurants, taverns, lounges andbars using the marks “Dan Marino’s Fine Food & Spirits” and “‘13’Martini Bar,” which was closed in 2007 and reopened as Night Owl Showroom.Florida Hooters, LLC was granted the license from Lags Ventures, Inc., anaffiliated entity under common ownership with Lags Ventures, LLC.  The initial term of the agreement is20 years but may be extended for an additional ten years.  See “Item 13. Certain Relationships andRelated Transactions.”

 

*Pete & Shorty’s.*  Pete & Shorty’s, Inc. hasgranted us a nonexclusive, royalty-free license to use the Pete &Shorty’s mark in connection with a restaurant, bar and lounge at the HootersCasino Hotel.  Pursuant to the licenseagreement, we can also use the mark in connection with affiliated merchandise,entertainment and casino services. However, Pete & Shorty’s, Inc. maintains the right toobtain federal and/or state registrations for any and all additional services,other than restaurant, bar and cocktail lounge services, which we provide atthe Hooters Casino Hotel.

 

**Employees**

** **

As of December 31, 2007, we had 966employees.  Most of our employees are notcovered by a collective bargaining agreement. On March 9, 2007, all 22 employees in the engineering department votedto be represented by the Operating Engineers Local #501 and Teamsters #995jointly in collective bargaining negotiations.

 

**Regulation and Licensing**

** **

The ownership and operation of casino gamingfacilities in Nevada are subject to the Nevada Gaming Control Act and theregulations promulgated thereunder (“Nevada Act”), and various localregulations.  In addition, our gamingoperations are subject to the licensing and regulatory control of the Nevada GamingCommission (“Nevada Commission”), the Nevada State Gaming Control Board (“NevadaBoard”), and the Clark County Liquor and Gaming Licensing Board (“CCLGLB”together with the Nevada Commission and the Nevada Board, the “Nevada GamingAuthorities”).  We receivedour license from the Nevada Gaming Authorities as a limited-liability companylicensee in October 2005 and are registered with the Nevada Commission asa publicly traded corporation, referred to as a “Registered Corporation”.  In addition, Florida Hooters LLC and EWCommon LLC are registered with the Nevada Gaming Authorities as intermediarycompanies and licensed as the members of 155 East Tropicana, LLC.  Hooters Gaming LLC, Lags Ventures, LLC, andEastern & Western are registered with the Nevada Gaming Authorities asholding companies and were found suitable as members of Florida Hooters LLC andEW Common LLC, respectively.  Also, Messrs. Lageschulte,DiGiannantonio, Ranieri, Droste, Johnson, Blakely, S. Izumi, T. Izumi andHessling are individually licensed as our managers.  Neil Kiefer and Deborah Pierce also holdindividual licenses as our officers. Finally, because we pay a percentage of our net profits directly earnedfrom our gaming activities to Hooters Gaming Corporation, it is licensed by theNevada Gaming Authorities as well.

 

The laws, regulations and supervisoryprocedures of the Nevada Gaming Authorities are based upon declarations ofpublic policy which are concerned with, among other things:

 

·             the prevention of unsavory or unsuitable personsfrom having a direct or indirect involvement with gaming at any time or in anycapacity;

 

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·             the establishment and maintenance of responsibleaccounting practices and procedures;

 

·             the maintenance of effective controls over thefinancial practices of licensees, including the establishment of minimumprocedures for internal fiscal affairs and the safeguarding of assets andrevenues, providing reliable record keeping and requiring the filing ofperiodic reports with the Nevada Gaming Authorities;

 

·             the prevention of cheating and fraudulent practices;and

 

·             providing a source of state and local revenuesthrough taxation and licensing fees.

 

Changes in these laws, regulations andprocedures could have an adverse effect on our business, financial conditionand results of operations.

 

Corporations and other entities that operatecasinos in Nevada are required to be licensed by the Nevada GamingAuthorities.  A gaming license for suchactivities requires the periodic payment of fees and taxes and is not transferable.  As a Registered Corporation, we are requiredto periodically submit detailed financial and operating reports to the NevadaCommission and to furnish any other information that the Nevada Commission mayrequire.

 

The Nevada Gaming Authorities may investigateany individual who has a material relationship to or material involvement withus in order to determine whether such individual is suitable or should belicensed as a business associate of a gaming licensee.  Our owners, officers, managers and certainkey employees are required to be licensed by the Nevada GamingAuthorities.  The Nevada GamingAuthorities may deny an application for licensing for any cause that they deemreasonable.  A finding of suitability iscomparable to licensing, and both require submission of detailed personal andfinancial information followed by a thorough investigation.  Changes in licensed positions must bereported to the Nevada Gaming Authorities and, in addition to their authorityto deny an application for a finding of suitability or licensure, the NevadaGaming Authorities have jurisdiction to disapprove a change in a corporateposition.

 

If the Nevada Gaming Authorities were to findan owner, officer, manager or key employee unsuitable for licensing or unsuitableto continue having a relationship with us, we would have to sever allrelationships with that person.  Inaddition, the Nevada Commission may require us to terminate the employment ofany person who refuses to file appropriate applications.  Determinations of suitability or of questionspertaining to licensing are not subject to judicial review in Nevada.

 

As licensees, we are required to submitdetailed financial and operating reports to the Nevada Commission.  Substantially all material loans, leases,sales of securities and similar financing transactions by us must be reportedto the Nevada Commission.

 

If it were determined that we violated theNevada gaming laws, our gaming licenses and registrations with the NevadaCommission could be limited, conditioned, suspended or revoked, subject tocompliance with certain statutory and regulatory procedures.  In addition, we and the persons involvedcould be subject to substantial fines for each separate violation of the Nevadalaws at the discretion of the Nevada Commission.  Further, the Nevada Commission could appointa supervisor to operate our gaming properties and, under certain circumstances,earnings generated during the supervisor’s appointment (except for thereasonable rental value of our gaming properties) could be forfeited to theState of Nevada.  Limitation,conditioning or suspension of any gaming license or the appointment of asupervisor could (and revocation of any gaming license would) materially adverselyaffect our operations.

 

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Since we do not intend to register or sellany of our equity securities, every holder of our equity securities is requiredto be licensed by the Nevada Gaming Authorities.  In addition, as 155 East Tropicana, LLC hasbeen licensed by the Nevada Gaming Authorities and has become a RegisteredCorporation, none of its membership interests can be issued, sold, assigned,transferred, pledged, or otherwise disposed of without the prior approval ofthe Nevada Board and the Nevada Commission. In addition, the pledge of our equity interests as security for theNotes was approved by the Nevada Board and the Nevada Commission at the time155 East Tropicana, LLC was licensed by and registered with the NevadaCommission, which was necessary in order for such pledge to remain effective.

 

If certain exemptions are granted under theNevada Act to a Registered Corporation, then any person who acquires more than5% of a Registered Corporation’s voting securities is required to report theacquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of aregistered corporation’s voting securities apply to the Nevada Commission for afinding of suitability within 30 days after the Chairman of the NevadaBoard mails the written notice requiring the filing for a finding ofsuitability.  Under certaincircumstances, an “institutional investor,” as defined in the regulations ofthe Nevada Commission, which acquires more than 10%, but not more than 15%, ofour voting securities may apply to the Nevada Commission for a waiver of suchfinding of suitability if that institutional investor holds the votingsecurities for investment purposes only. An institutional investor will not be deemed to hold voting securitiesfor investment purposes unless the voting securities were acquired and are heldin the ordinary course of business as an institutional investor and not for thepurpose of causing, directly or indirectly, the election of a majority of themembers of our board of managers, any change in our corporate charter, bylaws,management, policies or operations, or any of our gaming affiliates, or anyother action which the Nevada Commission finds to be inconsistent with holdingour voting securities for investment purposes only.  Activities which are not deemed to beinconsistent with holding voting securities for investment purposes onlyinclude:

 

·             voting on all matters voted on by stockholders;

 

·             making financial and other inquiries of managementof the type normally made by securities analysts for informational purposes andnot to cause a change in its management, policies or operations; and

 

·             other activities as the Nevada Commission maydetermine to be consistent with such investment intent.

 

If the beneficial holder of voting securitieswho must be found suitable is a corporation, partnership or trust, it mustsubmit detailed business and financial information including a list ofbeneficial owners.  The applicant isrequired to pay all costs of investigation.

 

Under the Nevada Act, under certaincircumstances, an institutional investor as defined in the Nevada Act, whichintends to acquire not more than 15% of any class of securities of aprivately-held corporation, limited partnership or limited-liability companythat is also a registered holder or intermediary company of the holder of agaming license, may apply to the Nevada Commission for a waiver of the usualprior licensing or finding of suitability requirements if such institutionalinvestor holds such securities only for investment purposes.  An institutional investor shall not be deemedto hold securities only for investment purposes unless the securities wereacquired and are held in the ordinary course of business as an institutionalinvestor, do not give the institutional investor management authority, and donot, directly or indirectly, allow the institutional investor to vote for theelection or appointment of members of the board of directors, a general partneror manager, cause any change in the articles of organization, operatingagreement, other organic document, management, policies or operations, or causeany other action that the Nevada Commission finds to be inconsistent withholding 

 

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securities only forinvestment purposes.  Activities that arenot deemed to be inconsistent with holding securities only for investmentpurposes include:

 

·             nominating any candidate for election or appointmentto the entity board of directors or equivalent in connection with a debtrestructuring;

 

·             making financial and other inquiries of managementof the type normally made by securities analysts for informational purposes andnot to cause a change in the entity management, policies or operations; and

 

·             such other activities as the Nevada Commission maydetermine to be consistent with such investment intent.

 

Any person who fails or refuses to apply fora finding of suitability or a license within 30 days after being orderedto do so by the Nevada Commission or the Chairman of the Nevada Board, may befound unsuitable.  The same restrictionsapply to a record owner if the record owner, after request, fails to identifythe beneficial owner.  Any stockholderfound unsuitable and who holds, directly or indirectly, any beneficialownership of the common stock of a registered corporation beyond the period oftime as may be prescribed by the Nevada Commission may be guilty of a criminaloffense.  We may become subject todisciplinary action if, after receipt of notice that a person is unsuitable tobe a stockholder or to have any other relationship with us, we:

 

·             pay that person any dividend or interest upon votingsecurities;

 

·             allow that person to exercise, directly orindirectly, any voting right conferred through securities held by that person;

 

·             pay remuneration in any form to that person forservices rendered or otherwise; or

 

·             fail to pursue all lawful efforts to require theunsuitable person to relinquish his voting securities for cash at fair marketvalue.

 

Additionally, the CCLGLB has taken theposition that it has the authority to approve all persons owning or controllingthe stock of any corporation controlling a gaming license.

 

We may be required to disclose to the NevadaBoard and the Nevada Commission the identities of all holders of our 8 3⁄4%Senior Secured Notes due 2012 (our “Notes”). The Nevada Commission may, in its discretion, require the holder of anydebt security of a Registered Corporation, including our Notes, to fileapplications, be investigated and be found suitable to own the debt security ofa Registered Corporation.  If the NevadaCommission determines that a person is unsuitable to own a debt security, thenpursuant to the Nevada Act, the Registered Corporation can be sanctioned,including the loss of its approvals, if without the prior approval of theNevada Commission, it:

 

·             pays to the unsuitable person any dividend,interest, or any distribution whatsoever;

 

·             recognizes any voting right by the unsuitable personin connection with debt securities;

 

·             pays the unsuitable person remuneration in any form;or

 

·             makes any payment to the unsuitable person by way ofprincipal, redemption, conversion, exchange, liquidation or similartransaction.

 

We are required to maintain a currentmembership ledger in Nevada, which may be examined by the Nevada GamingAuthorities at any time.  If anysecurities are held in trust by an agent or by a nominee, the record holder maybe required to disclose the identity of the beneficial holder to the Nevada 

 

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Gaming Authorities.  A failure to make such disclosure may begrounds for finding the record holder unsuitable.  We are also required to render maximumassistance in determining the identity of the beneficial owner.  The Nevada Commission has the power torequire our securities to bear a legend indicating that the securities aresubject to the Nevada Act.  However, todate, the Nevada Commission has not imposed such a requirement on us.

 

We may not make a public offering ofsecurities without the prior approval of the Nevada Commission if thesecurities or proceeds from the securities are intended to be used toconstruct, acquire or finance gaming facilities in Nevada, or to retire or extendobligations incurred for the purposes of constructing, acquiring or financinggaming facilities.  Furthermore, anyapproval, if granted, does not constitute a finding, recommendation or approvalby the Nevada Commission or the Nevada Board as to the accuracy or adequacy ofthe prospectus or the investment merits of the securities offered.  Any representation to the contrary isunlawful.  Pursuant to the Nevada Act,any entity which is not an “affiliated company,” as such term is defined in theNevada Act, or which is not otherwise subject to the provisions of the NevadaAct, including us, which plans to make a public offering of securitiesintending to use such securities or the proceeds from the sale thereof for theconstruction or operation of gaming facilities in Nevada, or to retire orextend obligations incurred for such purposes, may apply to the NevadaCommission for prior approval of such public offering.  The Nevada Commission may find an applicantunsuitable based solely on the fact that it did not submit such an application,unless upon a written request for a ruling, the Chairman of the Nevada Boardhas ruled that it is not necessary to submit such an application.

 

Changes in control of a RegisteredCorporation through merger, consolidation, stock or asset acquisitions,management or consulting agreements, or any act or conduct by a person wherebythat person obtains control (including foreclosure on pledged shares), may notoccur without the prior approval of the Nevada Commission.  Entities seeking to acquire control orownership of a Registered Corporation must satisfy the Nevada Board and NevadaCommission in a variety of stringent standards prior to assuming control ofsuch Registered Corporation.  The NevadaCommission may also require the stockholders, officers, managers and otherpersons having a material relationship or involvement with the entity proposingto acquire control, to be investigated and licensed as part of the approvalprocess relating to the transaction.

 

The Nevada legislature has declared that somecorporate acquisitions opposed by management, repurchases of voting securitiesand corporate defense tactics affecting Nevada gaming licensees, and RegisteredCorporations that are affiliated with those operations, may be injurious tostable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to amelioratethe potentially adverse effects of these business practices upon Nevada’sgaming industry and to further Nevada’s policy to:

 

·             assure the financial stability of corporate gamingoperators and their affiliates;

 

·             preserve the beneficial aspects of conductingbusiness in the corporate form; and

 

·             promote a neutral environment for the orderlygovernance of corporate affairs.

 

Approvals are, in certain circumstances,required from the Nevada Commission before we can make exceptional repurchasesof voting securities above the current market price thereof and before acorporate acquisition opposed by management can be consummated.  The Nevada Act also requires prior approvalof a plan of recapitalization proposed by the board of directors in response toa tender offer made directly to the Registered Corporation’s owners for thepurposes of acquiring control of the Registered Corporation.

 

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License fees and taxes, computed in variousways depending on the type of gaming or activity involved, are payable to theState of Nevada and to the counties and cities in which the Nevada licensee’srespective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxesare payable monthly, quarterly or annually and are based upon either:

 

·             a percentage of the gross revenues received;

 

·             the number of gaming devices operated; or

 

·             the number of table games operated.

 

Any person who is licensed, required to belicensed, registered, required to be registered, or is under common controlwith such persons, or “licensees,” and who is or who proposes to becomeinvolved in a gaming venture outside of Nevada, is required to deposit with theNevada Board, and thereafter maintain, a revolving fund in the amount of$10,000 to pay the expenses of investigation by the Nevada Board of thelicensees’ participation in foreign gaming. The revolving fund is subject to increase or decrease in the discretionof the Nevada Commission.  Thereafter,licensees are also required to comply with certain reporting requirementsimposed by the Nevada Act.  Licensees arealso subject to disciplinary action by the Nevada Commission if they knowinglyviolate any laws of the foreign jurisdiction pertaining to a foreign gamingoperation, fail to conduct the foreign gaming operation in accordance with thestandards of honesty and integrity required of Nevada gaming operations, engagein activities or enter into associations that are harmful to the State ofNevada or its ability to collect gaming taxes and fees, or employ, contractwith or associate with a person in the foreign operation who has been denied alicense or a finding of suitability in Nevada on the ground of personalunsuitability.

 

**Potential Changes in Tax and Regulatory Requirements**

** **

In the past, federal and state legislatorsand officials have proposed changes in tax law, or in the administration of thelaws, affecting the gaming industry. Regulatory commissions and state legislatures sometimes considerlimitations on the expansion of gaming in jurisdictions where we operate andother changes in gaming laws and regulations. Proposals at the national level have included a federal gaming tax andlimitations on the federal income tax deductibility of the cost of furnishingcomplimentary promotional items to customers, as well as various measures whichwould require withholding on amounts won by customers or on negotiateddiscounts provided to customers on amounts owed to gaming companies.  It is not possible to determine with certaintythe likelihood of possible changes in tax or other laws or in theadministration of the laws.  The changes,if adopted, could have a material adverse effect on our financial results.

 

**Compliance with Other Laws and Regulations**

** **

In addition to the regulations describedabove, our operations are also subject to extensive state and local laws,regulations and ordinances that apply to non-gaming businesses generally, and,on a periodic basis, we must obtain various other licenses and permits,including those required to sell alcoholic beverages.  We have not incurred, and do not expect toincur, material expenditures with respect to these laws and regulations.  There can be no assurances, however, that wewill not incur material liability under these laws and regulations in thefuture. See also “Item 1A. Risk Factors—Risks Related to OurBusiness—Governmental Regulations” and “—Factors Beyond Our Control.”

 

## **ITEM 1A.               RISK FACTORS.**

## ** **

The following risks, if any one or moreoccurs, could materially harm our business, financial condition or future resultsof operations.

 

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Risks Related to OurBusiness

 

**Recent Economic Developments — *Recent instability in thefinancial markets may have an impact on our business.***

 

Recently, the residentialreal estate market in Las Vegas and the U.S. has experienced a significantdownturn due to declining real estate values, substantially reducing mortgageloan originations and securitizations, and precipitating more generalizedcredit market dislocations and a significant contraction in available liquidityglobally. These factors, combined with rising oil prices, declining businessand consumer confidence and increased unemployment, have precipitated aneconomic slowdown and fears of a possible recession. Individual consumers areexperiencing higher delinquency rates on various consumer loans and defaults onindebtedness of all kinds have increased. Further declines in real estatevalues in Las Vegas and the U.S. or elsewhere and continuing credit andliquidity concerns could have an adverse affect on our results of operations.

 

**Domesticand International Events — *Our business may beadversely impacted by domestic and international events.***

 

The terrorist attacks thattook place in the United States on September 11, 2001, were unprecedentedevents that created economic and business uncertainties, especially for thetravel and tourism industry.  Thepotential for future terrorist attacks, the national and internationalresponses, and other acts of war or hostility, including the ongoing conflictin Iraq, have created economic and political uncertainties that couldmaterially adversely affect our business, results of operations and financialcondition in ways we cannot predict.

 

**Gaming Taxes and Fees — *If the State of Nevada or Clark County increases gaming taxes and fees,our results of operations could be adversely affected.***

** **

State and local authoritiesraise a significant amount of revenue through taxes and fees on gamingactivities. From time to time, legislators and officials have proposed changesin tax laws, or in the administration of such laws, affecting the gamingindustry. In addition, worsening economic conditions could intensify theefforts of state and local governments to raise revenues through increases in gamingtaxes.  If the State of Nevada or ClarkCounty, Nevada were to increase gaming taxes and fees, our results ofoperations could be adversely affected. There are several gaming tax increase proposals currently circulating inNevada.  These proposals would take theform of voter referendum.  Ifsuccessfully implemented, such an increase would have a material adverse effecton our financial condition, results of operations or cash flows.

 

**License Agreement—*We are required to paynumerous royalty and other fees to the licensors, some of whom are ouraffiliates, for the right to use certain intellectual property.***

** **

The Hooters trademark and logo insignia arethe exclusive property of Hooters of America.  Pursuant to certain licenses and an assignment of those license rightsto us, we have a royalty-bearing license to use certain intellectual propertyrelated to the Hooters brand solely for purposes of the operation of a HootersCasino Hotel located at our property. Our operation of the Hooters Casino Hotel is conditioned on payment ofcertain royalty fees to Hooters of America and some of our affiliates based onpercentages of revenues and sales generated by our gaming and restaurantactivities, as described under “Item 1. Business—Intellectual Property” and “Item13. Certain Relationships and Related Transactions,” and satisfaction of otherconditions under the license.  Failure tosatisfy the conditions could result in termination of the license.  Furthermore, in a bankruptcy of a licensor,the bankruptcy court could 

 

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conclude that the trademarklicense agreements are executory contracts and, subject to certain legalrequirements, may approve rejection of the license agreements.  Although we would take the position that ourlicense agreement with Hooters of America is perpetual and not an executorycontract, there can be no assurance that a bankruptcy court would so concludein a bankruptcy of Hooters of America. Rejection would give rise to a claim for damages for breach of thelicense and might prevent us from continuing to use the trademark or on thesame terms.  The loss of our licenserights could prevent us from operating as the Hooters Casino Hotel, which wouldhave a material adverse effect on our business, financial condition and resultsof operations.

 

**Use of Hooters Brand—*Use of the Hooters brandby entities other than us, including in Las Vegas and other areas of Nevada,could adversely affect our business, financial condition and results of operations.***

** **

We believe we benefit from the namerecognition and reputation generated by the Hooters restaurants that areoperated worldwide.  We have the right touse the Hooters brand and certain related intellectual property solely forpurposes of the Hooters Casino Hotel. Hooters Gaming Corporation, an affiliateunder common ownership with Hooters Gaming LLC, is the sole owner of the rightto use the Hooters brand in connection with the conduct of gaming and theoperation of hotels elsewhere in the state of Nevada. Hooters GamingCorporation has agreed not to operate (or license or assign its rights tooperate) another Hooters Casino Hotel on The Strip until our Notes are nolonger outstanding.  Additionally,Hooters Gaming Corporation has agreed not to operate (or license or assign itsrights to operate) another Hooters Casino Hotel in Clark County, Nevada for aperiod of four years from the issuance of our Notes or such earlier time asnone of our Notes are outstanding. However, Hooters Gaming Corporation or its assignee can exploit theHooters brand and logo in connection with hotel casinos and casinos in otherareas of Nevada and elsewhere, including marketing worldwide, and once theNotes are no longer outstanding, on The Strip. For example, other Hooters Casino Hotels could be opened in areas (otherthan The Strip) in Las Vegas and Nevada and throughout the world where gamingoperations are permitted. We cannot assure that the development of other hotelcasinos, casinos or restaurants using the Hooters brand in Nevada or elsewherewill not adversely affect our business, financial condition and results ofoperations.  Nor can we assure that ourbusiness, financial condition and results of operations will not be adverselyaffected by the management of the Hooters brand or any negative public image orother adverse event that becomes associated with the Hooters brand.

 

**Licensing—*We are required to maintain gaming, liquorand other licenses to operate the Hooters Casino Hotel. The gaming industry ishighly regulated.***

** **

Our operation of the Hooters Casino Hotel iscontingent upon the maintenance of various regulatory licenses, permits,approvals, registrations, findings of suitability, orders andauthorizations.  The laws, regulations,and ordinances requiring these licenses, permits and other approvals generallyrelate to the responsibility, financial suitability and character of the ownersand managers of our gaming operations, as well as persons financiallyinterested or involved in our gaming operations, almost all of whom had neverbeen licensed previously.  The scope ofthe approvals required to operate a facility were extensive.  Failure to maintain the necessary approvalscould adversely affect our ability to operate the Hooters Casino Hotel. See “Item1. Business—Regulation and Licensing.”

 

**Dependence Upon Cash Flow of Property—*Our cashflow to meet our payment obligations under the Notes and our other indebtednessand to fund our operations is dependent solely on the hotel casino.***

** **

We now rely exclusively on cash flowgenerated by the hotel casino as well as borrowings under our senior securedcredit facility (“Credit Facility”) to meet our payment obligations under theNotes and our other indebtedness and to fund our operations.  If we have insufficient funds available underour 

 

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Credit Facility and thehotel casino is not generating sufficient cash flow to meet our paymentobligations under the Notes for future interest payments and our otherindebtedness, we may be unable to make the required interest payments to theNote holders, to meet our payment obligations under our other indebtedness andto fund our operations.  See “Item 1A.Risk Factors—Risks Related to the Notes and Other Company Debt—Ability toService Debt.”

 

**Risk of a New Venture—*We have a limitedoperating history or history of earnings as the Hooters Casino Hotel.***

** **

We were formed to acquire, operate, renovateand re-brand the Hôtel San Rémo.  Whilethe Hôtel San Rémo has a history of operations and a history of earnings, ouroperating history is limited.  Moreover,in the past, the Hooters brand has not been associated with hotels orcasinos.  Consequently, we cannot becertain that the transformation of the Hôtel San Rémo into the Hooters CasinoHotel will ultimately attract the number and type of hotel and casino customersand other visitors we desire to achieve our objective of improving theprofitability of the hotel casino.

 

We are subject to significant business,economic, regulatory and competitive uncertainties frequently encountered bynew businesses in competitive environments, many of which are beyond ourcontrol.  Because we have a limitedoperating history, it may be more difficult for us to prepare for and respondto these types of risks, and the other types of risks described herein, ascompared with an established business. Our business prospects should be evaluated in light of the difficultiesfrequently encountered by companies in the early stages of gaming projects andthe risks inherent in the establishment of a new business enterprise.  There can be no assurance that we will beable to successfully operate the hotel casino or manage these riskssuccessfully, that the hotel casino will be profitable or that we will generatesufficient cash flow to meet our payment obligations under the Notes and ourother indebtedness, which would in turn negatively affect our business,financial condition and results of operations.

 

**Competition—*We are subject to intenselocal competition as well as competition in the gaming industry that couldhinder our ability to operate profitably.***

** **

Competition in Las Vegas has increased overthe last several years as a result of significant increases in hotel rooms,casino sizes and convention, trade show and meeting facilities.  Our success is dependent upon the success ofthe hotel casino and its continuing ability to attract visitors and operateprofitably.  The hotel casino, locatedone-half block east of The Strip, competes with high-quality Las Vegas resortsand other Las Vegas hotel casinos, including those located on The Strip and indowntown Las Vegas, on the basis of overall atmosphere, range of amenities,level of service, price, location, entertainment offered, theme and size.  Currently, there are approximately 35 majorgaming properties located on or near The Strip, 13 additional major gamingproperties in the downtown area and additional gaming properties located inother areas of Las Vegas.  Some of thesefacilities are operated by companies that have more than one operatingfacility, and many have greater name recognition and financial and marketingresources than us and market to the same target demographic group as wedo.  Furthermore, additional major hotelcasinos and significant expansion of existing properties, containing asignificant number of hotel rooms and attractions, are expected to open in LasVegas within the coming years.  There canbe no assurance that the Las Vegas market will continue to grow or that hotelcasino resorts will continue to be popular. A decline or leveling off of the growth or popularity of such facilitieswould adversely affect our business, financial condition and results ofoperations.  See “Item 1.Business—Competition.”

 

There also is substantial competition amonggaming companies in the gaming industry generally, which includes land-basedcasinos, dockside casinos, riverboat casinos, casinos located on Native 

 

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American land, including inCalifornia, and other forms of legalized gambling.  If other casinos operate more successfully,if existing properties are enhanced or expanded, or if additional hotels andcasinos are established in and around the locations where we conduct business,we may lose market share.  We alsocompete, to some extent, with other forms of gaming on both a local andnational level, including state-sponsored lotteries, Internet gaming, on- andoff-track wagering and card parlors.  Inparticular, the legalization of gaming or the expansion of legalized gaming inor near any geographic area from which we attract or expect to attract asignificant number of our customers could have a significant adverse effect onour business, financial condition and results of operations.

 

Increased competition may also require us tomake substantial capital expenditures to maintain and enhance the competitiveposition of our hotel casino.  Because weare highly leveraged, after satisfying our obligations under our outstandingindebtedness, there can be no assurance that we will have sufficient financingto make such expenditures.  If we areunable to make such expenditures, our competitive position and our results ofoperations could be materially adversely affected.

 

**Governmental Regulations—*We face extensiveregulation from gaming and other government authorities.***

** **

As owners and operators of gaming facilities,we are subject to extensive Nevada state and local regulation.  Nevada state and local government authoritiesrequire us and our subsidiaries to maintain gaming licenses and require ourofficers and key employees to demonstrate suitability to hold gaminglicenses.  The Nevada state and localgovernment may limit, condition, suspend or revoke a license for any causedeemed reasonable by the respective licensing agency.  They may also levy substantial fines againstus or the individuals involved in violating gaming laws or regulations.  The occurrence of any of these events couldhave a material adverse effect on our business, financial condition and resultsof operations.

 

No assurances can be given that any newlicenses, registrations, findings of suitability, permits and approvals,including for any proposed expansion of our hotel casino, will be renewed whenthey expire.  Any failure to renew or maintainour licenses or receive new licenses when necessary would have a materialadverse effect on us.

 

We are subject to a variety of other rules andregulations, including zoning, environmental, construction and land-use lawsand regulations governing the serving of alcoholic beverages.  We also pay substantial taxes and fees inconnection with our operations as a gaming company, which taxes and fees aresubject to increase or other change at any time.  Any changes to these laws could have amaterial adverse effect on our business, financial condition and results ofoperations.

 

The compliance costs associated with theselaws, regulations and licenses are significant. A change in the laws, regulations and licenses applicable to ourbusiness or a violation of any current or future laws or regulations or ourgaming licenses could require us to make material expenditures or couldotherwise materially adversely affect our business, financial condition orresults of operations.  For more detailedinformation, see “Item 1. Business—Regulation and Licensing.”

 

**Union Efforts to Organize Employees—*Our business, financialcondition, and results of operations may be harmed by union efforts to organizeour employees.***

** **

Our employees were not covered by collectivebargaining agreements as of December 31, 2006.  However, all 22 employees in our engineeringdepartment voted on March 9, 2007 to be represented by Operating EngineersLocal #501 and Teamsters #995 jointly in collective bargaining.

 

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Unionization of our employees could result indisruption in our business and could incur significant costs, both of whichcould have a material adverse effect on our results of operation and financialcondition.  We could experiencesignificant increases in our labor costs which could also have a materialadverse effect on our business, financial condition, and results ofoperations.  We may face an increasedrisk of union activity now that the Hooters Casino Hotel has opened due to ahigher profile of the Hooters brand.

 

**Possible Conflicts of Interest—*The relationship of ourchief executive officer to Hooters Inc. and related entities createspotential for conflicts of interest.***

** **

Neil Kiefer, our chief executive officer isthe President, Chief Executive Officer and director of Hooters Inc. andrelated entities, which are based in Florida, and some of which may haveinterests adverse to us.  Due to Mr. Kiefer’sresponsibilities to serve both companies, there is potential for conflicts ofinterest.  At any particular time, theneeds of Hooters Inc. could cause Mr. Kiefer to devote attention toHooters Inc. at the expense of devoting attention to us.  In addition, matters may arise that place Mr. Kieferin conflicting positions.  No assurancecan be given that material conflicts will not arise which could be detrimentalto our business, financial condition and results of operations.

 

**Factors Beyond Our Control—*Our business, financialcondition and results of operations are dependent in part on a number offactors that are beyond our control.***

** **

The economic health of our business isgenerally affected by a number of factors that are beyond our control,including:

 

·             continued increases in healthcare costs;

 

·             general economic conditions and economic conditionsspecific to our primary markets;

 

·             inaccessibility to our property due to constructionon adjoining or nearby properties, streets or walkways;

 

·             levels of disposable income of casino customers;

 

·             increased transportation costs;

 

·             local conditions in key gaming markets, includingseasonal and weather-related factors;

 

·             increase in gaming taxes or fees;

 

·             decline in tourism and travel due to occurrences orthreats of terrorism or other destabilizing events;

 

·             substantial increase in the cost of electricity,natural gas and other forms of energy;

 

·             competitive conditions in the gaming industry,including the effect of such conditions on the pricing of our games andproducts;

 

·             the relative popularity of entertainmentalternatives to casino gaming that compete for the leisure dollar;

 

·             the adoption of anti-smoking regulations; and

 

·             an outbreak or suspicion of an outbreak of aninfectious communicable disease.

 

Any of these factors could negatively impactour property or geographic location in particular or the casino industrygenerally, and as a result, our business, financial condition and results ofoperations.

 

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**Environmental Matters—*We are subject toenvironmental laws and potential exposure to environmental liabilities. Thismay cause us to incur costs or affect our ability to develop, sell or rent ourproperty or to borrow money using such property as collateral.***

** **

We are subject to various federal, state andlocal environmental laws, ordinances and regulations, including those governingdischarges to air and water, the generation, handling, management and disposalof petroleum products, asbestos containing materials and other hazardoussubstances, and the health and safety of our employees.  Permits may be required for our operationsand these permits are subject to renewal, modification and, in certain cases,revocation.  In addition, as a propertyowner and operator, we may be liable for the costs of investigating andremediating these substances or products on, under or in our property, withoutregard to whether we knew of, or caused, the presence of the contaminants, andregardless of whether the practices that resulted in the contamination werelegal at the time they occurred.  Thepresence of, or failure to remediate properly, the substances may adverselyaffect our ability to sell or lease our property or to borrow funds using it ascollateral.  Additionally, we may besubject to claims by third parties based on damages and costs resulting fromenvironmental contamination emanating from our property.

 

We have not identified any such issuesassociated with our property that could reasonably be expected to have anadverse effect on us or the results of our operations.  However, it is possible that historical orneighboring activities have affected our property and, as a result, there canbe no assurance that material obligations or liabilities under environmentallaws will not arise in the future which may have a material adverse effect onus.  Moreover, it is also possible thatfuture developments could lead to material environmental compliance costs orother liabilities for us and that these costs could have a material adverseeffect on our business and financial condition.

 

**Uninsured Losses—*We may incur losses thatare not adequately covered by insurance which may harm our financial conditionand results of operations.***

** **

Although we maintain insurance that webelieve is customary and appropriate for our business, we cannot assure youthat insurance will be available or adequate to cover all loss and damage towhich our business and our assets might be subjected.  In connection with insurance renewalssubsequent to the terrorist events of September 11, 2001, the insurancecoverage for certain types of damages or occurrences have been diminishedsubstantially and is unavailable at commercial rates.  The lack of adequate insurance for certaintypes or levels of risk could expose us to significant losses in the event thata catastrophe or lawsuit occurred for which we are underinsured.  Any losses we incur that are not adequatelycovered by insurance may decrease our future operating income, require us tofind a replacement for or repair destroyed property and reduce the fundsavailable for payment of our obligations on the Notes and our otherindebtedness.

 

**RisksRelated to the Notes and Other Company Debt**

** **

**Substantial Debt—*Our substantial level ofdebt could adversely affect our financial condition and prevent us fromfulfilling our obligations under the Notes and our other debt.***

** **

Wehave substantial debt.  As of December 31,2007, we have total debt of $138.6 million. In addition to the Notes, we and our subsidiary are permitted under theindenture governing the Notes to incur additional debt, including up to$15.0 million principal amount of debt under our Credit Facility and debtused to purchase furniture, fixtures and equipment (including unlimited gamingfurniture, fixtures and equipment financing). Additionally, if we satisfy debt coverage tests in our debt agreements,we could incur further debt.  If new debtwere to be incurred in the future, the related risks could intensify.

 

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Our substantial debt could have importantconsequences and significant effects on our business. For example, it could:

 

·             make it more difficult for us to satisfy ourobligations under the Notes and our other debt;

 

·             result in an event of default if we fail to satisfyour obligations under the Notes or our other debt or fail to comply with thefinancial and other restrictive covenants contained in the indenture governingthe Notes or our Credit Facility, which event of default could result in all ofour debt becoming immediately due and payable and could permit our lenders toforeclose on our assets securing such debt;

 

·             require us to dedicate a substantial portion of ourcash flow from our business operations to pay our debt, thereby reducing theavailability of cash flow to fund working capital, capital expenditures,development projects, general operational requirements and other purposes;

 

·             limit our ability to obtain additional financing forworking capital, capital expenditures and other activities;

 

·             limit our flexibility in planning for, or reactingto, changes in our business and the industry in which we operate;

 

·             increase our vulnerability to general adverseeconomic and industry conditions or a downturn in our business; and

 

·             place us at a competitive disadvantage compared tocompetitors that are not as highly leveraged.

 

Any of the above-listed factors could have amaterial adverse effect on our business, financial condition and results ofoperations and our ability to meet our payment obligations under the Notes andour other debt.

 

**Ability to Service Debt—*To service our debt, wewill require a significant amount of cash. If we fail to generate sufficientcash flow from future operations, we may have to refinance all or a portion ofour debt or seek to obtain additional financing.***

** **

We expect to obtain the funds to pay ourexpenses and to pay the amounts due under the Notes, our Credit Facility andour other debt primarily from our operations and if necessary, our ability todraw against our Credit Facility. Our ability to meet our expenses and makethese payments thus depends on our future performance, which will be affectedby financial, business, economic and other factors, many of which we cannotcontrol.  Our business may not generatesufficient cash flow from operations in the future and our currentlyanticipated growth in revenue and cash flow may not be realized, either or bothof which could result in our being unable to pay amounts due under our debt,including the Notes, or to fund other liquidity needs, such as future capitalexpenditures.  If we do not havesufficient cash flow from operations, we may be required to refinance all orpart of our then existing debt, sell assets, reduce or delay capitalexpenditures or borrow more money.  Wecannot assure you that we will be able to accomplish any of these alternativeson terms acceptable to us, or at all.  Inaddition, the terms of existing or future debt agreements, including our CreditFacility and the indenture governing the Notes, may restrict us from adoptingany of these alternatives.  The failureto generate sufficient cash flow or to achieve any of these alternatives couldmaterially adversely affect our ability to pay our debt obligations.

 

20

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**Limitations on Collateral—*The collateral securingthe Notes does not include any of our gaming assets or certain other excluded assets.***

** **

The Notes and any guarantees thereof aresecured by a security interest in substantially all of our and any guarantors’existing and future assets (other than certain excluded assets), a pledge ofour equity interests and the equity interests in any guarantors.  As of December 31, 2007, there are nosubsidiary guarantors.  The collateraldoes not include gaming licenses or any gaming equipment or other assetssecuring furniture, fixtures and equipment financing, and there are norestrictions on the amount of gaming equipment financed in this manner.  The collateral also does not includecontracts, agreements, licenses (including gaming and liquor licenses) andother rights that by their express terms prohibit the assignment thereof or thegrant of a security interest therein. Some of these may be material to us and such exclusion could have amaterial adverse effect on the value of the collateral.

 

**Value of Collateral Securing the Notes—*The fairmarket value of the collateral securing the Notes may not be sufficient to paythe amounts owed under the Notes.***

** **

The proceeds of any sale of collateralfollowing an event of default with respect to the Notes may not be sufficientto satisfy, and may be substantially less than, amounts due on the Notes.  No appraisal has been made of thecollateral.  The total value of thecollateral is likely less than the amount due on the Notes.

 

The value of the collateral in the event ofliquidation will depend upon market and economic conditions, the availabilityof buyers and similar factors.  By itsnature, some or all of the collateral may not have a readily ascertainablemarket value or may not be saleable or, if saleable, there may be substantialdelays in its liquidation.  To the extentthat liens, security interests and other rights granted to other parties(including the lenders under our Credit Facility) encumber assets owned by us,those parties have or may exercise rights and remedies with respect to theproperty subject to their liens that could adversely affect the value of thatcollateral and the ability of the trustee under the indenture governing theNotes or the holders of the Notes to realize or foreclose on thatcollateral.  Consequently, we cannot giveassurance that liquidating the collateral securing the Notes would produceproceeds in an amount sufficient to pay any amounts due under the Notes afteralso satisfying the obligations to pay any creditors with prior claims on thecollateral.

 

In addition, under the intercreditoragreement between the trustees under the indenture governing the Notes and thelenders under our Credit Facility, the right of the lenders to exerciseremedies with respect to the collateral could delay liquidation of thecollateral.  The gaming licensingprocess, along with bankruptcy laws and other laws relating to foreclosure andsale, as discussed below, also could substantially delay or prevent the abilityof the trustee or any holder of the Notes to obtain the benefit of anycollateral securing the Notes.  Suchdelays could have a material adverse effect on the value of the collateral.

 

The indenture governing the Notes alsopermits us to designate one or more of our restricted subsidiaries as anunrestricted subsidiary.  If we designatea restricted subsidiary as an unrestricted subsidiary, all of the liens on anycollateral owned by the unrestricted subsidiary or any of its subsidiaries andany guarantees of the Notes by the unrestricted subsidiary or any of itssubsidiaries will be released under the indenture but not necessarily under ourCredit Facility.  Designation of anunrestricted subsidiary will reduce the aggregate value of the collateralsecuring the Notes to the extent that liens on the assets of the unrestrictedsubsidiary and its subsidiaries are released. In addition, the creditors of the unrestricted subsidiary and itssubsidiaries will have a prior claim (ahead of the Notes) on the assets of suchunrestricted subsidiary and its subsidiaries.

 

21

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If the proceeds of any sale of collateral arenot sufficient to repay all amounts due on the Notes, the holders of the Notes(to the extent not repaid from the proceeds of the sale of the collateral),would have only an unsecured claim against our remaining assets.

 

**Lien Subordination of Notes—*The lien on the collateral(other than the renovation disbursement and interest reserve accounts) securingthe Notes are contractually subordinated pursuant to the intercreditoragreement to the liens securing our Credit Facility.***

** **

The security interests securing the Notes andany guarantees of the Notes are contractually subordinated to up to$15.0 million principal amount of debt (plus related interest, fees,indemnities, costs and expenses) that may be incurred under our Credit Facility,pursuant to an intercreditor agreement between the trustee under the indenturegoverning the Notes and the lenders under our Credit Facility.  In addition, lenders of furniture, fixturesand equipment financing and other purchase money debt have a security interestin the assets securing that debt, although those assets, so long as they secureonly such debt, will not secure the Notes. The indenture permits unlimited gaming furniture, fixtures and equipmentfinancing and up to $2.5 million of other secured purchase moneyfinancing.  As a result, upon anydistribution to our creditors, whether or not in bankruptcy, liquidation,reorganization or similar proceedings, or following acceleration of our debt oran event of default under such debt, the lenders under our Credit Facility andthe lenders of furniture, fixtures and equipment financing and other purchasemoney debt will be entitled to be repaid in full from the proceeds of theassets (other than the renovation disbursement account) securing such debtbefore any payment is made to holders of Notes from such proceeds.

 

Consequently, the liquidation of thecollateral securing the Notes may not produce proceeds in an amount sufficientto pay the amounts due on the Notes after also satisfying the obligations topay our Credit Facility lenders and purchase money lenders, even if the fairmarket value of the collateral securing the Notes would be sufficient, absentour Credit Facility and purchase money debt, to pay all amounts due on theNotes.  If the proceeds of any sale ofcollateral are not sufficient to repay all amounts due on the Notes, theholders of the Notes (to the extent not repaid from the proceeds of the sale ofthe collateral), would have only an unsecured claim against our remainingassets.

 

**Mechanics’ Liens—*Parties who have providedservices or supplies in connection with the renovation of our hotel casino mayhave a lien on the project senior to the security interests securing the Notesand any guarantees.***

** **

Nevada law provides contractors, subcontractorsand material suppliers with a lien on the property improved by their servicesor supplies in order to secure their right to be paid.  If these parties are not paid in full, theymay seek foreclosure on their liens.  InNevada, the priority of all mechanics’ liens related to a particularconstruction project relate back to the date on which work first commenced byany contractor.  Accordingly,contractors, subcontractors and suppliers providing goods and services in connectionwith the renovation of the hotel casino who after recordation of the securityinterests securing the Notes otherwise comply with the applicable requirementsof Nevada law may have a lien on our hotel casino senior in priority to thesecurity interests, securing the Notes until they are paid in full.

 

In the event of liquidation, proceeds fromthe sale of collateral will be used to pay the holders of any mechanics’ liensthen in existence before holders of the Notes.

 

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**Limited Ability of Holders of the Notes to Exercise Remedies—*The rights of the trustee and holders of Notes to exercise remediesunder the indenture governing the Notes are limited by an intercreditoragreement between the trustee and the lenders under our Credit Facility.***

** **

A number of the rights and remedies of thetrustee and the holders of the Notes are significantly limited under theintercreditor agreement.  For instance,if the Notes become due and payable prior to the stated maturity or are notpaid in full at the stated maturity at a time during which we have debtoutstanding under our Credit Facility, the trustee will not have the right toforeclose upon the collateral that also secures the obligations under ourCredit Facility (other than the renovation disbursement account) unless anduntil the lenders under our Credit Facility fail to take steps to exerciseremedies with respect to or in connection with such collateral within 90 daysfollowing notice to such lenders of the occurrence of an event of default underthe indenture governing the Notes.  Inaddition, the intercreditor agreement prevents the trustee and the holders ofthe Notes from pursuing remedies with respect to certain of the collateral inan insolvency proceeding.

 

The rights and remedies of the trustee alsoare subject to additional practical limitations with respect to certaincollateral so long as such collateral also secures our Credit Facility.  The trustee does not and will not havepossession (if certificated) of our equity interests in any guarantors or theequity interests of 155 East Tropicana, LLC and 155 East Tropicana FinanceCorp. (even though such equity interests will constitute collateral), so longas such equity interests also secure our Credit Facility.  As a result, so long as such equity interestsalso secure our Credit Facility, the trustee (although it will have a perfectedsecurity interest in such equity interests) will not be able to take possessionof such equity interests upon the occurrence of an event of default under theindenture governing the Notes.  Inaddition, the trustee does not have a perfected security interest in certainother portions of the collateral—including deposit accounts—that consist ofassets that are not perfected by filing a Uniform Commercial Code financingstatement, or that require that the issuers or any guarantor, as applicable, tocause the trustee to obtain “control” (as defined in the Uniform CommercialCode) or possession of such assets (and, after commercially reasonable efforts,the issuers or any such guarantor, as applicable, are unable to cause thetrustee to obtain such control or possession).

 

**Limited Ability of Holders of Notes to Realize on Collateral—*Gaming laws, bankruptcy laws and other factors may delay or otherwiseimpede the trustee’s ability to foreclose on the collateral securing the Notes.***

** **

In addition to our intercreditor arrangementswith lenders under our Credit Facility, the gaming laws of the State of Nevadaand the licensing processes, along with other laws relating to foreclosure andsale, could substantially delay or prevent the ability of the trustee or anyholder of the Notes to obtain the benefit of any collateral securing theNotes.  For example, if the trusteesought to operate, or retain an operator for, any of our gaming properties, thetrustee would be required to obtain Nevada gaming licenses.  Potential purchasers of our gaming propertiesor the gaming equipment would also be required to obtain a Nevada gaminglicense.  This could limit the number ofpotential purchasers in a sale of our gaming properties or gaming equipment,which may delay the sale of and reduce the price paid for the collateral.

 

In addition, the trustee’s ability torepossess and dispose of collateral is subject to the procedural and otherrestrictions of state real estate, commercial and gaming law, as well as theprior approval of the lenders under our Credit Facility.  Among other things, if the trustee didconduct a foreclosure sale, and if the proceeds of the sale were insufficient,after expenses, to pay all amounts due on the Notes, the trustee might, undercertain circumstances, be permitted to assert a deficiency claim againstus.  There can be no assurance that thetrustee would be able to obtain a judgment for the deficiency or that we wouldhave sufficient other assets to pay a deficiency judgment.

 

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Federal bankruptcy law also could impair thetrustee’s ability to foreclose upon the collateral.  If we or a guarantor become a debtor in acase under the United States Bankruptcy Code, as amended, or the BankruptcyCode, the automatic stay, imposed by the Bankruptcy Code upon the commencementof a case, would prevent the trustee from foreclosing upon the collateral or(if the trustee has already taken control of the collateral) from disposing ofit, without prior bankruptcy court approval.

 

The bankruptcy court might permit us tocontinue to use the collateral while the bankruptcy case was pending, even ifthe Notes were then in default.  Underthe Bankruptcy Code, holders of Notes and the trustee would be entitled to “adequateprotection” of the interest of holders of Notes in the collateral, if necessaryto protect against any diminution in value during the case.  Because the Bankruptcy Code does not define “adequateprotection,” and because the bankruptcy court has broad discretion, however,there can be no assurance that the court would require us to provide holders ofNotes with any form of “adequate protection,” or that any protection so orderedwould, in fact, be adequate.

 

In a bankruptcy case, the court would allow aclaim for all amounts due under the Notes, including all accrued and unpaidinterest through the date of bankruptcy. Under the Bankruptcy Code, interest stops accruing on the date ofbankruptcy except under certain specified circumstances, and there can be noassurance that the court would allow a claim for post-bankruptcy interest.  If the court held that the value of thecollateral securing the Notes was less than the amount due, the trustee wouldbe permitted to assert a secured claim in an amount equal to the collateral’svalue and an unsecured claim for the deficiency.

 

For these and other reasons,if we or our subsidiaries become debtors in cases under the Bankruptcy Code,there can be no assurance:

 

·             whether any payments under the Notes would be made;

 

·             whether or when the trustee could foreclose upon orsell the collateral;

 

·             whether the term or other conditions of the Notes orany rights of the holders could be altered in a bankruptcy case without thetrustee’s or the investors’ consent;

 

·             whether the trustee or investors would be able toenforce the investors’ rights against the guarantors under their guarantees; or

 

·             whether or to what extent holders of the Notes wouldbe compensated for any delay in payment or decline in the collateral’s value.

 

Finally, the trustee’s ability to forecloseon the collateral on behalf of the holders of Notes may be subject to theconsent of third parties, prior liens (as discussed above) and practicalproblems associated with the realization of the trustee’s security interest inthe collateral.

 

**Restrictive Covenants—*The indenture governingthe Notes and our Credit Facility contain covenants that significantly restrictour operations.***

** **

The indenture governing the Notes and theagreement governing our Credit Facility contain, and any other future debtagreements may contain, numerous covenants imposing financial and operatingrestrictions on our business.  Theserestrictions may affect our ability to operate our business, may limit ourability to take advantage of potential business opportunities as they arise andmay adversely affect the conduct of our current business.  These covenants place restrictions on ourability and the ability of our restricted subsidiaries to, among other things:

 

·             pay dividends, redeem stock or make otherdistributions or restricted payments;

 

 

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·             incur debt or issue preferred equity interests;

 

·             make certain investments;

 

·             create liens;

 

·             agree to payment restrictions affecting theguarantors;

 

·             consolidate or merge;

 

·             sell or otherwise transfer or dispose of assets,including equity interests of our restricted subsidiaries;

 

·             enter into transactions with our affiliates;

 

·             designate our subsidiaries as unrestrictedsubsidiaries; and

 

·             use the proceeds of permitted sales of our assets.

 

Our failure to comply with our debt-relatedobligations could result in an event of default under the Notes and our otherdebt.

 

**Ability to Repurchase Notes—*Our ability to repurchasethe Notes upon a change of control or an asset sale may be limited.***

** **

Upon the occurrence of specific “change ofcontrol” events and “asset sale” events, in each case as defined in theindenture governing the Notes, we will be required to offer to repurchase alloutstanding Notes at 101% of the principal amount (in the case of a change ofcontrol) and 100% of the principal amount (in the case of an asset sale), ineach case, plus accrued and unpaid interest to the date of repurchase.  The lenders under our Credit Facility willhave a similar right to be repaid upon a change of control.  Any of our future debt agreements may containsimilar provisions with respect to a change of control or asset sale.  However, we may not have sufficient funds atthe time of the change of control or asset sale to make the required repurchaseof Notes or repayment of our other debt. The terms of our Credit Facility also will limit our ability to purchaseNotes until all debt under our Credit Facility is paid in full.  Any of our future debt agreements may containsimilar restrictions.  If we fail torepurchase any Notes submitted in a change of control or asset sale offer, itwould constitute an event of default under the indenture which would, in turn,constitute an event of default under our Credit Facility and could constitutean event of default under our other debt, even if the change of control itselfwould not cause a default.

 

Important corporate events, such astakeovers, recapitalizations or similar transactions, may not constitute achange of control under the indenture governing the Notes and thus not permitthe holders of the Notes to require us to repurchase or redeem the Notes.

 

**Required Regulatory Redemption—*Noteholders may berequired to be licensed by a gaming authority and, if not so licensed, theirNotes will be subject to redemption.***

** **

We are required to notify the Nevada Board asto the identity of, and may be required to submit background informationregarding, each record or beneficial owner of the Notes.  For purposes of these rules, “beneficialinterest” includes all direct and indirect forms of ownership or control,voting power or investment power held through any contract, lien, lease,partnership, stockholding, syndication, joint venture, understanding,relationship, present or reversionary right, title or interest, orotherwise.  The Nevada Board maydetermine that holders of the Notes have a “beneficial interest” in theissuers.

 

 

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If the Nevada Gaming Authorities require anyperson, including a record or beneficial owner of the Notes, to be licensed,qualified or found suitable, that person must apply for a license,qualification or finding of suitability within the time period specified by thegaming authority.  The person would berequired to pay all costs of obtaining a license, qualification or finding ofsuitability.  If a holder of the Notes isunable or unwilling to obtain such license, qualification or finding ofsuitability, such agencies and authorities may not grant us or, if alreadygranted, may suspend or revoke our licenses unless we terminate ourrelationship with the holder.  Underthese circumstances, we would be required to repurchase such Notes.  There can be no assurance that we will havesufficient funds or otherwise will be able to repurchase any or all of theNotes.  See “Item 1. Business—Regulationand Licensing.”

 

**Fraudulent Transfer—*Under certaincircumstances, a court could cancel the obligations under the Notes or anyguarantees and the liens that secure the Notes and guarantees.***

** **

Unless designated as an unrestrictedsubsidiary, each and any domestic subsidiary we form or acquire will berequired to guarantee the Notes and grant a security interest in certain of itsassets (junior to the security interest granted to the lenders under our CreditFacility) to secure its guarantee.  Underfederal bankruptcy law and comparable provisions of state and federalnonbankruptcy fraudulent transfer laws, under certain circumstances a courtcould avoid (i.e., cancel) a guarantee and the security interest in theguarantor’s assets, and order the return of any payments made thereunder to theguarantor or to a fund for the benefit of its other creditors.

 

A court might take these actions if it foundthat when the guarantor entered into its guarantee (or, in some jurisdictions,when payments became due on its guarantee), (i) it received less thanreasonably equivalent value or fair consideration for its guarantee, and (ii) anyof the following conditions was then satisfied:

 

·             the guarantor was insolvent or rendered insolvent byreason of incurring its obligations under its guarantee or granting a securityinterest in its assets;

 

·             the guarantor was engaged in a business ortransaction for which its remaining assets constituted unreasonably smallcapital; or

 

·             the guarantor intended to incur, or believed (orreasonably should have believed) that it would incur, debts beyond its abilityto pay as those debts matured.

 

In applying these factors, a court wouldlikely find that a subsidiary guarantor did not receive fair consideration orreasonably equivalent value for its guarantee, except to the extent that itbenefited directly or indirectly from the Notes’ issuance.  The determination of whether a subsidiary wasor was rendered “insolvent” would vary depending on the law of the jurisdictionbeing applied.  Generally, an entitywould be considered insolvent if the sum of its debts (including contingent orunliquidated debts) is greater than all of its property at a fair valuation orif the present fair salable value of its assets is less than the amount thatwill be required to pay its probable liability on its existing debts (includingcontingent or unliquidated debts) as they become absolute and matured.

 

A court might also avoid a guarantor’sguarantee and the security interest in its assets, if the court concluded thatthe guarantor entered into the guarantee with actual intent to hinder, delay,or defraud creditors.  If a court avoideda guarantor’s guarantee, you would no longer have a claim against thatsubsidiary, and the claims of creditors of the subsidiary generally would beentitled to payment in full before the subsidiary paid any dividends or made anydistributions to us for the purpose of our satisfying any claims under theNotes.

 

 

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Similarly, under federal bankruptcy law andcomparable provisions of state and federal nonbankruptcy fraudulent transferlaws, under certain circumstances a court could avoid (i.e., cancel) the Notesand the security interest in an issuer’s assets, and order the return of anypayments made thereunder to the issuer or to a fund for the benefit of itsother creditors.

 

A court might take these actions if it foundthat when an issuer issued the Notes, (i) it received less than reasonablyequivalent value or fair consideration, and (ii) any of the followingconditions was then satisfied:

 

·             the issuer was insolvent or rendered insolvent byreason of incurring obligations under the Notes or granting a security interestin its assets;

 

·             the issuer was engaged in a business or transactionfor which its remaining assets constituted unreasonably small capital; or

 

·             the issuer intended to incur, or believed (orreasonably should have believed) that it would incur, debts beyond its abilityto pay as those debts matured.

 

We used a substantial portion of the proceedsfrom the Notes to repay amounts due under existing indebtedness.  To the extent that we used the proceeds ofthat indebtedness to make payments to Eastern & Western (the parent ofone of our members), in connection with our acquisition of our hotel casino, acourt might find that we did not receive reasonably equivalent value or fairconsideration for incurring our new debt obligations, under the Notes, to repayour existing indebtedness. Alternatively, a court might find that repayment of the existingindebtedness, which is guaranteed by certain of our affiliates, was for thebenefit of these affiliates.

 

Regardless of the factors identified above, acourt might also avoid the obligations of the issuers under the Notes and thesecurity interest in their assets and order the return of any payments madeunder the Notes either to the issuers or to a fund for the benefit of theissuers’ other creditors if the court found that the issuers incurred theobligations under the Notes with actual intent to hinder, delay, or defraudcreditors of the issuers.

 

**Redemption**—***We may choose to redeem the Notes at anytime on orafter April 1, 2009.***

 

The Notes are redeemable atour option on or after April 1, 2009. This means that we have the right, without a holder’s consent, to redeemor “call” all or a portion of the Notes at any time or on or after April 1,2009.  This does not mean that holdershave a similar right to require us to repay the Notes.  We may choose to redeem the Notes, forexample, when prevailing interest rates are lower than the rate then borne bythe Notes.  In that case holders wouldnot be able to reinvest the redemption proceeds in a comparable security at aneffective interest rate as high as the interest rate on the Notes beingredeemed.

 

Any such redemption right also may adverselyimpact a holder’s ability to sell the Notes, and/or the price at which holderscould sell the Notes, as the redemption date approaches.  Holders are advised to consult with acompetent professional on related consequences of purchasing redeemable notes beforepurchasing them.

 

## **ITEM 1B.               UNRESOLVED STAFF COMMENTS.**

## ** **

Not applicable.

 

 

27

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## **ITEM 2.**                             PROPERTIES.

## ** **

Our principal properties currently consist ofthe following:

 

*Hooters Casino Hotel.*  We own the approximately seven-acre site onwhich the Hooters Casino Hotel is located in Las Vegas, Nevada.  The Hooters Casino Hotel consists of anapproximately 29,000 square-foot casino with 696 guest rooms located in thehotel casino building and within two towers. In addition, a six-level, 556-space parking garage is located adjacentto the hotel casino, and 202 additional surface parking spaces are located onthe site.

 

*Executive Offices and ConferenceFacility.*  We own anapproximately two-acre site consisting of a one-level, 17,472 square-footexecutive office building and conference facility and a 183-space parking lot.

 

Our Credit Facility and our Notes are securedby liens on all of our real property.

 

## **ITEM 3.**                             LEGAL PROCEEDINGS.

## ** **

From time to time, we are a party to variousclaims arising in the normal course of business.  Management believes, however, that there areno proceedings pending or threatened against us which, if determined adversely,would have a material adverse effect on our financial condition, results ofoperations or liquidity.

 

## **ITEM 4.**                             SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS.

## ** **

Notapplicable.

 

# **PART II**

# ** **

## **ITEM 5.**                             MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIES.

## ** **

Not applicable.

 

 

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## **ITEM 6.**                             SELECTED FINANCIALDATA.

## ** **

Thehistorical selected financial data of 155 East Tropicana, LLC and of the HôtelSan Rémo Casino and Resort set forth below should be read in conjunction with “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and “Item 8. Financial Statements and Supplementary Data.”  The statement of operations data for theperiods ended December 31, 2007, 2006 and 2005, and the balance sheet dataat December 31, 2007 and 2006 of 155 East Tropicana, LLC are derived from,and are qualified by reference to, the audited financial statements included in“Item 8. Financial Statements and Supplementary Data.”

 

**155 EAST TROPICANA, LLC**

 
| ** **                      | ** ** | **As of or for the periods ended** | ** ** |
|---------------------------------|------------|------------------------------------|------------|
| ** **                      | ** ** | **December 31,**              | ** ** |
| ** **                      | ** ** | **2007**                           | ** ** | **2006** | ** ** | **2005 (1) (2)** | ** ** |
| ** **                      | ** ** | **(dollars in thousands)**         | ** ** |
| **Results of Operations:**      | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues (3)                |       | $                                  | 65,038     |   | $ | 66,711 |   | $ | 7,967 |   |
| Operating expenses (4)          |       | 58,362                             |       | 59,112 |   | 4,280 |   |
| Depreciation                    |       | 6,250                              |       | 5,842 |   | 1,956 |   |
| Pre-opening expense             |       | —                             |       | 5,293 |   | 4,825 |   |
| Related party royalties expense |       | 1,387                              |       | 1,459 |   | — |   |
| Loss on disposal of assets      |       | —                             |       | 1,199 |   | — |   |
| Total operating loss            |       | (961                               | )          | (6,194 | ) | (3,094 | ) |
| Interest expense, net (5)       |       | (13,157                            | )          | (12,247 | ) | (8,526 | ) |
| Loss on extinguishment of debt  |       | —                             |       | — |   | (2,247 | ) |
| Net loss                        |       | $                                  | (14,118    | ) | $ | (18,441 | ) | $ | (13,867 | ) |
| **Balance Sheet:**              | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents       |       | $                                  | 5,862      |   | $ | 6,164 |   | $ | 14,191 |   |
| Total assets                    |       | 139,147                            |       | 145,593 |   | 163,159 |   |
| Total long-term debt (6)        |       | 138,587                            |       | 134,940 |   | 130,000 |   |
| Total liabilities               |       | 152,154                            |       | 144,482 |   | 143,607 |   |
| Members’ (deficit) equity  |       | (13,007                            | )          | 1,111 |   | 19,553 |   |

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(1)          We obtained our gaming andliquor licenses, thereby completing the final stage of the acquisition ofsubstantially all the assets and certain liabilities of the hotel casino, in October 2005.  The results of operation reflect the casinoand hotel operations from November 1, 2005 through December 1, 2005.

 

(2)          We were considered adevelopment stage company until November 1, 2005.

 

(3)          Net revenues for 2005include related party lease income of $5.4 million received from Eastern &Western for the lease of the hotel casino from January 1, 2005 through October 31,2005.

 

(4)          Excludes depreciationexpense, pre-opening expense, related party royalties expense, and loss ondisposal of assets.

 

(5)          Interest expense, net ofinterest income.

 

(6)          Includes current portion oflong-term debt.

 

 

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The following historical information of the Hôtel San Rémo Casino andResort is derived from its audited financial statements for 2003 through2005.  Hôtel San Rémo Casino and Resort’saudited financial statements and related notes thereto as of October 31,2005 and for the year then ended appear elsewhere in this Annual Report on Form 10-K.

 

 
| **HÔTEL SAN RÉMO CASINO AND RESORT** | ** ** |
|------------------------------------------------|------------|
| ** **                                     | ** ** | **Ten Months Ended  October 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **2005 (1)** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                     | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Results of Operations:**                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Casino                                         |       | $ | 8,947 |   | $ | 12,725 |   | $ | 11,691 |   |
| Food and beverage                              |       | 5,557 |   | 7,969 |   | 7,782 |   |
| Hotel and other                                |       | 12,217 |   | 14,826 |   | 12,531 |   |
| Gross revenues                                 |       | 26,721 |   | 35,520 |   | 32,004 |   |
| Promotional allowances                         |       | (1,770 | ) | (2,414 | ) | (2,179 | ) |
| Net revenues                                   |       | $ | 24,951 |   | $ | 33,106 |   | $ | 29,825 |   |
|                                           |       |   |   |   |   |   |   |
| **Operating expenses:**                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Casino                                         |       | $ | 5,275 |   | $ | 6,796 |   | $ | 6,828 |   |
| Food and beverage                              |       | 4,977 |   | 6,360 |   | 6,099 |   |
| Hotel and other                                |       | 3,628 |   | 4,377 |   | 4,293 |   |
| General and administrative                     |       | 6,678 |   | 7,860 |   | 6,604 |   |
| Depreciation                                   |       | 335 |   | 1,419 |   | 2,134 |   |
| Related party lease expense (2)                |       | 5,439 |   | 2,150 |   | — |   |
| Restructuring costs                            |       | — |   | 514 |   | — |   |
| Total operating expense                        |       | $ | 26,332 |   | $ | 29,476 |   | $ | 25,958 |   |
|                                           |       |   |   |   |   |   |   |
| Operating (loss) income                        |       | $ | (1,381 | ) | $ | 3,630 |   | $ | 3,867 |   |
|                                           |       |   |   |   |   |   |   |
| **Other income (expenses):**                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income from affiliate                 |       | $ | 346 |   | $ | 444 |   | $ | 579 |   |
| Interest expense                               |       | (7 | ) | (1,944 | ) | (1,185 | ) |
| Loss on sale of assets                         |       | — |   | (2 | ) | — |   |
| Foreign currency translation                   |       | — |   | 660 |   | (2,264 | ) |
| Total other income  (expenses)                 |       | 339 |   | (842 | ) | (2,870 | ) |
| (Loss) income before  income taxes             |       | (1,043 | ) | 2,788 |   | 997 |   |
| Benefit (provision) for  income taxes          |       | 397 |   | (867 | ) | (303 | ) |
| Net (loss) income                              |       | $ | (646 | ) | $ | 1,921 |   | $ | 694 |   |
|                                           |       |   |   |   |   |   |   |
| **Balance sheet**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                      |       | $ | 2,903 |   | $ | 4,471 |   | $ | 2,703 |   |
| Total assets                                   |       | 8,215 |   | 12,297 |   | 33,312 |   |
| Total debt                                     |       | — |   | 236 |   | 45,226 |   |
| Total liabilities                              |       | 4,355 |   | 4,824 |   | 49,103 |   |
| Division equity (deficit)                      |       | 3,860 |   | 7,473 |   | (15,791 | ) |

### ****

(1)          The completion of the finalstage of the acquisition of the Hôtel San Rémo Casino and Resort occurred in October 2005,upon receipt of our gaming and liquor licenses. The results of operation reflect the casino and hotel operations from January 1,2005 through October 31, 2005 when the

 

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Hôtel San Rémo Casino andResort ceased operations.

 

(2)          In connection with the August 3,2004 contribution of the Hôtel San Rémo Casino and Resort real property andnon-gaming assets to us, Eastern & Western entered into leasearrangements to lease back the hotel casino until we received all of thenecessary government and regulatory approvals to operate the hotel casino.  In October 2005, we received thenecessary gaming and liquor licenses; therefore, the lease arrangements wereterminated on October 31, 2005.

 

The following selected quarterly financial data of155 East Tropicana, LLC for the years ended December 31, 2007 and 2006 isderived from the quarterly condensed consolidated financial statements of 155East Tropicana, LLC . The financial data for the fourth quarter of 2007 and2006 are derived from the annual consolidated financial statements of 155 EastTropicana, LLC included in “Item 8 Financial Statements and Supplementary Data.”

 
| ** **              | ** ** | **155 EAST TROPICANA, LLC**            | ** ** | ** **              | ** ** |
|-------------------------|------------|----------------------------------------|------------|-------------------------|------------|
| ** **              | ** ** | **For the fiscal quarter ended**       | ** ** | ** **              | ** ** |
| ** **              | ** ** | **March 31,  2007**               | ** ** | **June 30,  2007** | ** ** | **September 30,  2007** | ** ** | **December 31,  2007** | ** ** | **Total** | ** ** |
| ** **              | ** ** | **(dollars in thousands) (unaudited)** | ** ** | ** **              | ** ** |
| Net revenues            |       | $                                      | 17,162     |                    | $          | 17,178 |   | $ | 15,850 |   | $ | 14,848 |   | $ | 65,038 |   |
| Operating (loss) income |       | 366                                    |       | (832                    | )          | (356 | ) | (140 | ) | (962 | ) |
| Net loss                |       | (2,868                                 | )          | (4,127                  | )          | (3,637 | ) | (3,487 | ) | (14,119 | ) |
|                         |            |                                        |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **              | ** ** | **155  EAST TROPICANA, LLC**               | ** ** | ** **              | ** ** |
|-------------------------|------------|--------------------------------------------|------------|-------------------------|------------|
| ** **              | ** ** | **For the  fiscal quarter ended**          | ** ** | ** **              | ** ** |
| ** **              | ** ** | **March 31,  2006**                   | ** ** | **June 30,  2006** | ** ** | **September 30,  2006** | ** ** | **December 31,  2006** | ** ** | **Total** | ** ** |
| ** **              | ** ** | **(dollars  in thousands)****(unaudited)** | ** ** | ** **              | ** ** |
| Net revenues (1)        |       | $                                          | 14,906     |                    | $          | 18,025 |   | $ | 17,006 |   | $ | 16,775 |   | $ | 66,712 |   |
| Operating (loss) income |       | (4,856                                     | )          | (1,633                  | )          | (529 | ) | 824 |   | (6,194 | ) |
| Net loss                |       | (7,596                                     | )          | (4,735                  | )          | (3,737 | ) | (2,373 | ) | (18,441 | ) |
|                         |            |                                            |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Net revenues issued inprevious quarters have been reduced for the reclassification (from casinoexpense) of slot participation fees.

 

## **ITEM 7.**                             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

## ** **

Thefollowing discussion should be read in conjunction with, and is qualified inits entirety by, the financial statements and related notes thereto and otherfinancial information included in “Item 8. Financial Statements andSupplementary Data.”  Certain statementsin this Management’s Discussion and Analysis of Financial Condition and Resultsof Operations are forward-looking.

 

***Overview for 155 East Tropicana, LLC***

 

155East Tropicana, LLC (“we”, “us”, “our”, or “155”) was formed on June 17,2004 to acquire the Hôtel San Rémo Casino and Resort (“Hôtel San Rémo”), fromEastern & Western Hotel Corporation (“Eastern & Western”).Our common membership interests are held two-thirds through Florida Hooters LLCand one-third through EW Common LLC.

 

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FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC. The owners of Hooters Gaming LLC, which include most of the originalfounders of the Hooters brand, hold licenses to sell wholesale foods andcalendars and to operate hotel casinos in Nevada and Hooters restaurants inTampa Bay, Florida, Chicago, Illinois, and downtown Manhattan in New York. LagsVentures, LLC is owned by a holder of the license rights to Hooters restaurantsin South Florida and the State of Nevada. Pursuant to these license rights, theowners of Florida Hooters LLC operate 40 Hooters restaurants, publish Hooterscalendars, and operate a Hooters foods business. The owner of Lags Ventures,LLC is also the founder of the Dan Marino concept restaurants and owns andoperates 2 Dan Marino concept restaurants.

 

Eastern &Western owns 90% of EW Common LLC, while our President owns the balance.Eastern & Western owned the Hôtel San Rémo from November 1988until our acquisition of the Hôtel San Rémo in 2004.

 

Ouraffiliates have granted us assignments of certain license agreements pertainingto the use of the Hooters brand as well as the Dan Marino, “13” Martini Bar andPete & Shorty’s concept restaurants, which will allow us to operatethe Hooters Casino Hotel. The original founders of the Hooters brand sold thetrademark rights (excluding certain rights they retained for themselves) toHooters of America in 2001. As a result, Hooters of America is the trademarkowner of the Hooters brand and the operator and franchisor of Hootersrestaurants. Pursuant to the Hooters license assignment, we are required to payHooters of America a royalty fee, which totaled approximately $1.2 million forthe year ending December 31, 2007. Aside from the abovementioned royaltyfee, we are not otherwise affiliated with Hooters of America.

 

InAugust 2004, we agreed to the acquisition of the real property and otherassets of the Hôtel San Rémo for approximately $74.6 million includingtransaction costs and expenses, and as adjusted for final purchase priceadjustments.

 

OnMarch 29, 2005, we issued $130.0 million aggregate principal amountof 83⁄4% Senior Secured Notes due 2012, or the old notes, in a private placement.The old notes were subsequently exchanged with new notes, or (“Notes”),registered under the Securities Act of 1933 on Form S-4. Interest paymentson the Notes are due semi-annually, on each April 1 and October 1. Weused the proceeds from the offering to refinance existing indebtedness, andused the remaining proceeds (together with cash from operations and proceedsfrom equipment financing) to renovate the hotel casino and to provide workingcapital.

 

Inconnection with the offering, we formed a wholly owned subsidiary, 155 EastTropicana Finance Corp., solely for facilitating the offering as a co-issuer ofthe old notes.

 

Wealso entered into a $15.0 million senior secured credit facility (“CreditFacility”) concurrently with the offering. At December 31, 2007, $6.3million was outstanding on the Credit Facility.

 

Priorto November 1, 2005 we conducted no business operations other than inconnection with the acquisition and subsequent leasing of the Hôtel San Rémo.Through October 31, 2005, Eastern & Western held the gaminglicense in Nevada and owned all gaming assets by the Hôtel San Rémo. Under acasino lease and hotel lease, Eastern & Western operated the Hôtel SanRémo. After obtaining the necessary gaming and liquor licenses to operate thehotel casino in October 2005, we assumed operations of the hotel casino onNovember 1, 2005 and the leases with Eastern & Western wereterminated.

 

32

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Casinorevenue is derived primarily from patrons wagering on slot machines, tablegames and other gaming activities. Table games include blackjack, craps,roulette, and specialty games. Casino revenue is defined as the win from gamingactivities, computed as the difference between gaming wins and losses, not thetotal amount wagered. “Table game drop” and “slot handle” are casino industryspecific terms used to identify the amount wagered by patrons for a casinotable game or slot machine, respectively. “Table game hold” and “slot hold”represent the percentage of the total amount wagered by the patron that thecasino has won. Hold is derived by dividing the amount won by the casino (“tablegame win” and “slot win”) by the amount wagered by the patron. Casino revenueis recognized at the end of each gaming day.

 

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hooters Casino Hotel andother hotels in Las Vegas. Casino revenues also vary depending upon the amountof gaming activity as well as variations in the odds for different games ofchance. Casino revenues, room revenues, food and beverage revenues, and otherrevenues vary due to general economic conditions and competition.

 

Room revenueis derived from rooms and suites rented to guests. “Average daily rate” is anindustry specific term used to define the average amount of revenue per rentedroom per day. “Occupancy percentage” defines the total percentage of roomsoccupied, and is computed by dividing the number of rooms occupied by the totalnumber of rooms available. Room revenue is recognized at the time the roomis provided to the guest.

 

Food,beverage and entertainment revenues are derived from food and beverage sales inthe food, bar and entertainment outlets of the hotel casino, includingrestaurants, room service, bars, entertainment showroom and banquets. Food,beverage, and entertainment revenue is recognized at the time food and/orbeverage is provided to the guest. “Covers” are the number of patrons served ina food outlet. “Average check” is the average amount of food and beveragerevenue charged to patrons on their restaurant checks.

 

Thefollowing table summarizes the combined results of operations of 155 EastTropicana, LLC and the results of operations of the Hôtel San Rémo as if therehad been no change in ownership during 2005 (in thousands):

 

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| ** **                                                                | ** ** | **155 E. Tropicana, LLC**               | ** ** | **155 E. Tropicana, LLC**               | ** ** | ** **                 | ** ** | **COMBINED**                            | ** ** | ** **                 | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|----------------------------|------------|
| ** **                                                                | ** ** | **Year Ended  December 31,  2007** | ** ** | **Year Ended  December 31,  2006** | ** ** | **%  Change  2007 - 2006** | ** ** | **Year Ended  December 31,  2005** | ** ** | **%  Change  2006 - 2005** | ** ** |
| ** **                                                                | ** ** | **(dollars in thousands)**              | ** ** | ** **                              | ** ** |
| Casino revenues                                                           |       | $                                       | 23,551     |                                    | $          | 25,830                     |       | -8.8                                    | %          | $                          | 9,940      |   | 159.9 | % |
| Casino expenses                                                           |       | 13,441                                  |       | 13,104                                  |       | 2.6                        | %          | 6,328                                   |       | 107.1                      | %          |
| Profit margin                                                             |       | 42.9                                    | %          | 49.3                                    | %          |                       |       | 36.3                                    | %          |                       |       |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Food, beverage and entertainment revenues                                 |       | $                                       | 23,318     |                                    | $          | 23,621                     |       | -1.3                                    | %          | $                          | 6,218      |   | 279.9 | % |
| Food, beverage and entertainment expenses                                 |       | 17,722                                  |       | 18,974                                  |       | -6.6                       | %          | 6,118                                   |       | 210.1                      | %          |
| Profit margin                                                             |       | 24.0                                    | %          | 19.7                                    | %          |                       |       | 1.6                                     | %          |                       |       |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Hotel and other revenues                                                  |       | $                                       | 24,484     |                                    | $          | 22,696                     |       | 7.9                                     | %          | $                          | 13,392     |   | 69.5 | % |
| Hotel and other expenses                                                  |       | 9,222                                   |       | 8,786                                   |       | 5.0                        | %          | 4,270                                   |       | 105.8                      | %          |
| Profit margin                                                             |       | 62.3                                    | %          | 61.3                                    | %          |                       |       | 68.1                                    | %          |                       |       |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Promotional allowances                                                    |       | $                                       | 6,316      |                                    | $          | 5,436                      |       | 16.2                                    | %          | $                          | 2,072      |   | 162.4 | % |
| Percent of gross revenues                                                 |       | 8.9                                     | %          | 7.5                                     | %          |                       |       | 7.0                                     | %          |                       |       |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| General and administrative expenses                                       |       | $                                       | 17,978     |                                    | $          | 18,248                     |       | -1.5                                    | %          | $                          | 8,123      |   | 124.6 | % |
| Percent of net revenues                                                   |       | 27.5                                    | %          | 27.4                                    | %          |                       |       | 29.6                                    | %          |                       |       |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Depreciation expense                                                      |       | $                                       | 6,250      |                                    | $          | 5,842                      |       | 7.0                                     | %          | $                          | 2,291      |   | 155.0 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Pre-opening expenses                                                      |       | $                                       | —     |                                    | $          | 5,293                      |       | -100.0                                  | %          | $                          | 4,824      |   | 9.7 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Related party royalties expense                                           |       | $                                       | 1,387      |                                    | $          | 1,459                      |       | -4.9                                    | %          | $                          | —     |   | 100.0 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Loss on disposal of assets                                                |       | $                                       | —     |                                    | $          | 1,199                      |       | -100.0                                  | %          | $                          | —     |   | 100.0 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Loss on extinguishment of debt                                            |       | $                                       | —     |                                    | $          | —                     |       |                                    |       | $                          | 2,247      |   | -100.0 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Interest income                                                           |       | $                                       | 91         |                                    | $          | 499                        |       | -81.8                                   | %          | $                          | 1,976      |   | -74.7 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Interest expense                                                          |       | $                                       | 13,248     |                                    | $          | 12,746                     |       | 3.9                                     | %          | $                          | 10,163     |   | 25.4 | % |
|                                                                      |       |                                    |       |                                    |       |                       |       |                                    |       |                       |       |
| Related party lease income  (155 East Tropicana, LLC)                     |       | $                                       | —     |                                    | $          | —                     |       |                                    |       | $                          | 5,439      |   | -100.0 | % |
| Related party lease expense  (Hôtel San Rémo Casino and Resort) |       | $                                       | —     |                                    | $          | —                     |       |                                    |       | $                          | 5,439      |   | -100.0 | % |

## ** **

***Comparison of Year Ended December 31, 2007 with the Year ended December 31,2006***

 

Incomparing the ended December 31, 2007 to 2006, it should be noted that theHooters Casino Hotel was open for business for the full year ended December 31,2007. The results of operations for the year ended December 31, 2006include the month of January 2006 when the property was essentially closedfor remodeling and the first eleven months of operations of the Hooters CasinoHotel from February 3, 2006 through December 31, 2006.

 

In spite of the negativeeffect of remodeling in January 2006, net operating revenues for the yearended December 31, 2007 were $65.0 million, a decrease of $1.7 million or3%, from $66.7 million generated during the previous year. A decrease of $0.9million in net revenue was the result of increased promotional allowancesbecause of increased slot club cash back of $0.4 million and othercomplimentaries given away. Entertainment complimentaries totaled $0.5 milliongiven away to promote trips to the property The media and excitement that accompanied the grand opening of theHooter’s Casino Hotel in February 2006 caused a three month spike inrevenues resulting from trial visitations.

 

34

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The decline in gross revenues in 2007 is largelyattributable to a decline in casino revenues. Table games and slot revenues both declined, due to a decrease in casinotable drop and coin-in volumes.

 

*Casino.* Casino revenues decreased by $2.3 million or 8.8%to $23.5 million for the year ended December 31, 2007, compared to $25.8million for the year ended December 31, 2006.  This decline in casino revenue is the resultof a general decline in the property’s visitor traffic.  According to the Nevada Gaming Control Board,although the Las Vegas Strip in total enjoyed a marginal increase in gamingrevenue of 2.1% for 2007 compared to 2006, the smaller Strip properties, suchas we are, reported declines in gaming revenue.

 

Tablegames revenue was $9.5 million for the year ended December 31, 2007, adecrease of $1.5 million or 14% compared to table game revenue of $11.0 millionfrom the year ending December 31, 2006. During the year ended December 31,2007, table game volume (or drop) was reduced by $7.4 million or 11.0%, inaddition to a lower hold percentage. The hold percentage for table game win was16.8% in 2007 compared to 17.1% for the year ended 2006.  The table games generated an average win pertable of $873 per day for the year ended December 31, 2007 as compared to$1,013 per day after the opening of the Hooters Casino on February 3through December 31, 2006.

 

Accordingto Gaming Revenue Reports published by the Nevada Gaming Control Board, theaverage win per table for the five Las Vegas Strip casinos with average gamingrevenue of $12 to $36 million for 2007 was $773 and table game revenue fell by$4.4 million or 13.6% in 2007 as compared to 2006.  The average win per table game for the sevenLas Vegas Strip casinos with an average gaming revenue of $36 to $72 millionwas $997 in 2007 and table game revenue fell by $8.1 million or 7.4% in 2007 ascompared to 2006.  Our table games winper table for 2007 is within industry norms, although (as occurred in aslightly lesser degree in comparable Strip properties), our table games revenuehas dropped from 2006.   We believe thatthis is indicative of an overall softening of the Las Vegas Strip casinorevenues that has affected smaller properties the hardest.

 

 Slot revenue (net of participation fees) was$13.2 million for the year ended December 31, 2007, which was a decreaseof $1.1 million or 8.0% compared to $14.3 million in the same period in 2006.With the exception of $0.1 million, the entire slot revenue for 2006 wasgenerated after grand opening through December 31, 2006.  The average win per machine per day (beforededucting participation fees) was $62 for the year ended December 31, 2007as compared to $73 from February 3, 2006 to December 31, 2006. Ourdecrease in slot revenue is not inconsistent with other competitors.

 

Accordingto Nevada Gaming published reports, the average win per unit for the five LasVegas Strip casinos with an average gaming revenue of $12 to $36 million for2007 was $73 in 2007 and slot revenue fell by $9.5 million or 10.4% in 2007 ascompared to 2006.  The average win perunit for the seven Las Vegas Strip casinos with an average gaming revenue of$36 to $72 million was $116 for 2007 and slot revenue fell by $6.7 million or2.4% in 2007 as compared to 2006.    Webelieve that our slot revenue win per unit can be increased to a morecompetitive level in future periods by focusing on special slot promotions,direct marketing programs and other programs targeted to increase casinotraffic.  Those programs were institutedin late 2007 and early 2008.

 

Casino expenses of $13.4million for the year ended December 31, 2007 were up $0.3 million from$13.1 million for the year ended December 31, 2006 due to increased casinomarketing costs, offset partially by decreased operating expenses on the casinofloor. The profit margin for casino operations

 

35

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decreased from 49.3% during the year ended December 31,2006 to 42.9% during the year ended December 31, 2007.

 

*Food, beverage, and entertainment.* Food, beverage, and entertainment revenuedecreased $0.3 million or 1.3% to $23.3 million for the year ended December 31,2007 compared to $23.6 million for the year ended December 31, 2006.Beverage revenue of $8.7 million (which includes complimentary beverages)decreased by $1.2 million, or 13%, from $10.0 million during the year ended December 31,2006. This decrease is due largely to the closing of the “13” Martini Bar and adecline in other bar revenues.  Ourshowroom, which opened mid April 2007, generated $0.8 million inentertainment ticket revenues for the year ended December 31, 2007, ofwhich $0.5 million was complimentary revenues.

 

Foodrevenue increased from $13.6 million for the year ended December 31, 2006to $13.7 million for the year ended December 31, 2007 an increase of $0.1million or 1%. The increase was due to a $1.1 million food revenue increase inMarino’s. Marino’s offered a new dinner special, which generated additionalrevenue.  In addition, the Dam 24-hourcoffee shop was closed on October 24, 2007 and Marino began operations atthat time as a 24-hour restaurant.  Forthe months of November and December 2007, Marino’s revenue increased$0.5 million or 194%, largely due to this change in operations.  The increase in Marino’s food revenue waspartially offset by a decrease of $0.5 million at the Dam 24-hour coffee shopfor 2007 compared to 2006.

 

 Food, beverage, and entertainment expensesdecreased from $18.9 million during the year ended December 31, 2006 to$17.7 million during the year ended December 31, 2007, a decrease of $1.2million. The profit margin for food, beverage, and entertainment operationsincreased to 24% for the year ended December 31, 2007 from 19.7% in thesame period in 2006 due to cost control. We saved $0.4 million in foodoperating expenses in November and December 2007 as a result ofclosing the Dam 24-hour restaurant on October 24, 2007.  We generated these savings because we wereable to consolidate our front-of-the-house serving staff and close kitchen operationsfor the Dam restaurant to more efficiently operate out of the Marino’skitchen.  The additional savings were theresult of various cost savings that were initiated throughout the year such asreducing staffing levels to match business levels, cutting entertainment costs,closing sushi and deli operations and reducing other miscellaneous expenses.

 

*Hotel and other.* Hoteland other revenue (which includes hotel room revenue, retail, spa, and othermiscellaneous revenue) increased $1.8 million to $24.4 million for the yearended December 31, 2007 from $22.6 million for the year ended December 31,2006.

 

Room revenuewas $18.3 million for the year ended December 31, 2007 compared to $16.2million in the same period in 2006. This increase was a result of an increasein occupancy, offset by a decrease in average daily room rates. Average dailyroom rates decreased slightly from $91 for the year ended December 31,2006 to $74 for the year ended December 31, 2007, while occupancy ratesincreased from 78.6% for the year ended December 31, 2006 to 89.6% for theyear ended December 31, 2007. Occupancy rates increased largely because ofsuccessful targeted marketing efforts in southern California and increasedsales through the wholesalers, internet providers and our group sales.

 

Salesfrom our retail outlets selling Hooters logo merchandise decreased 6.0 % from$5.1 million for the year ended December 31, 2006 to $4.8 million for theyear ended December 31, 2007 due to a general decline in traffic. Othermiscellaneous revenue remained constant.

 

36

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Hotel and other expensesincreased to $9.2 million for the year ended December 31, 2007 from $8.8million for the year ended December 31, 2006. These increases in expenseswere largely due to operating the hotel for a full twelve months in 2007, ascompared to eleven month of operations in 2006. Hotel operations cut costs in several areas.  The profit margin for hotel and other of62.3% improved for 2007 compared to 61.3% for 2006. Retail sales generated aprofit margin of 42.91% for the year ended December 31, 2007 compared to47.69% for the year ended December 31, 2006.

 

*General and administrative.* General and administrativeexpense includes costs associated with marketing, information technology, andfinance, accounting, and property operations. General and administrativeexpense decreased $0.2 million to $18.0 million for the year ended December 31,2007 compared to $18.2 million for the year ended December 31, 2006. Thisdecrease was principally due to decreases in advertising and marketing expensesfor the year ended December 31, 2007 as compared to 2006.

 

*Depreciation and amortization expense.* Depreciation andamortization expense of $6.2 million for the year ended December 31, 2007increased by $0.4 million, or 7.0%, from $5.8 million for the year ended December 31,2006. This increase in depreciation expense was due to recording a full twelvemonths of depreciation in 2007 compared to eleven months in 2006 and also depreciationon additional asset purchases.

 

*Related party royalties expense.*Beginning on February 3,2006, we incurred related party royalty fees pursuant to agreements withHooters Gaming Corporation, Lags Ventures, Inc., and Las Vegas Wings, Inc.These related party royalties expense totaled $1.4 million and $1.5 millionduring the years ended December 31, 2007 and 2006, respectively. Thepayment of the related party royalties is restricted under the Notes indenture.The fees can only be paid after the close of the fiscal year and only if ourdebt coverage ratio is 1.5 to 1 for that fiscal year. The payments of theroyalty fees are further limited to the sum of 2% of revenue and 3% of EBITDA,as defined in the indenture.

 

*Interest income.* Interest income was $90,953 for the yearended December 31, 2007, compared to $498,607 for the year ended December 31,2006. In 2006, the Company earned interest on construction funds, which wereused during 2006 to pay for construction costs.

 

*Interest expense.* Interest expense was $12.7 million for theyear ended December 31, 2006, compared to $13.2 million for the year endedDecember 31, 2007, an increase of $0.5 million. The increase in interestexpense is largely attributable to $5.3 million in interest expense on theCredit Facility and the equipment purchase agreements we entered into during2006 and 2007.

 

*Provision for income taxes.* 155 is a limited-liabilitycompany and are treated as a partnership for federal income tax purposes.Accordingly, a provision for federal income taxes is not recorded on ourconsolidated financial statements. Taxable income or loss will be included inthe income tax returns of the members.

 

***Comparison of Year Ended December 31, 2006 (155 East Tropicana,LLC) with the Year Ended December 31, 2005 (Combined)***

 

Theresults of operations for the year ended December 31, 2006 includes themonths of January 2006 when the property was essentially closed forremodeling and the first eleven months of operations of

 

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theHooters Casino Hotel from February 3, 2006 through December 31,2006.  Net operating revenues for theyear ended December 31, 2006 were $66.7 million, an increase of $39.2million or 147.3%, from $27.5 million of combined net operating revenues for155 and Hôtel San Rémo during the same period in the previous year.  Included in the net revenues for the yearended December 31, 2006 were $66.4 million generated by the Hooters CasinoHotel operations beginning on February 3, 2006.  The significant increase in net operatingrevenues was due to increased activity in all areas of the casino and hoteloperations following the opening of the newly renovated Hooters Casino Hotel.

 

Expensesbefore interest, depreciation, related-party royalties, pre-opening expenses,and loss on disposal totaled $59.1 million for the year ended December 31,2006.  This level of spending against netrevenues of $66.7 million did not result in adequate cash flow from operationsto cover debt service and capital expenditures. We targeted certain operating expenses and reduced these expensesstarting in June 2006.  Expensesbefore interest, depreciation and related party royalties were cut from $17.4million in the second quarter of 2006 to $15.4 million in the thirdquarter.  The decline in third quarterexpenses resulted largely from cutting marketing costs by $1.0 million, payrollcosts by $0.2 million and other operational expenses by $0.9 million.  Expenses before interest, depreciation andrelated party royalties were then cut from $15.4 million in the third quarterof 2006 to $14.4 million in the fourth quarter of 2006, a decline of $1.0million.  The decline in fourth quarterexpenses resulted largely from cutting marketing costs by $0.6 million, foodand beverage costs by $0.3 million, and other general and administrativeexpenses by $0.2 million.

 

*Casino.*  Casinorevenues increased by $15.9 million to $25.8 million for the year ended December 31,2006, compared to $9.9 million for the year ended December 31, 2005.  Casino revenue of $25.7 million was generatedafter the grand opening on February 3, 2006.

 

Tablegames revenue was $11.0 million in 2006, an increase of $7.8 million, or241.0%, from the prior year’s table games win of $3.2 million.  With the exception of $0.1 million, all tablegames revenue was generated after the grand opening.  Table games drop increased to $64.4 million,or by 280.3%, for the year ended December 31, 2006 compared to the sameperiod in 2005, but the table games hold percentage decreased from 19.1% in2005 to 17.1% in 2006.  The table gamesgenerated an average win per table of $1,013 per day after February 3,2006 as compared to $568 for the same period in 2005.  According to the Gaming Revenue Reportspublished by the Nevada Gaming Control Board, the average win per table per dayfor Las Vegas Strip casinos with annual gaming revenue of $36.0 to $70.0million was $1,069 for the year ended December 31, 2006.

 

Slotrevenue of $14.3 million for the year ended December 31, 2006 was anincrease of 115.9% compared to $6.6 million in 2005.  With the exception of $0.1 million, theentire slot revenue was generated after the grand opening.  The average win per machine per day was $73from February 3, 2006 to December 31, 2006 compared to $40 for thesame period in 2005.  According to theGaming Revenue Reports published by the Nevada State Gaming Control Board, theaverage win per machine per day for Las Vegas Strip casinos with annual gamingrevenue of $36.0 to $70.0 million was $111 for the year ended December 31,2006.  Management began implementingstrategies in 2006 to increase slot play. In the summer of 2006, we began to add new slot machines to the floorand reconfigure the floor to make it more inviting.  We continued by targeting our marketingefforts at increasing slot play through more aggressive slot club awards,modifications to the pay tables on the slot machines to award more and largerpayouts, direct mailing campaigns, and other promotions and programs aimed atincreasing the flow of customers to the casino floor.  These programs began in the fourth quarter of2006 and continued to be implemented in early 2007.

 

Casinoexpenses increased by 107.1% to $13.1 million for the year ended December 31,2006 compared to $6.3 million for the year ended December 31, 2005 due toincreases in payroll and other

 

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operationalexpenses.  However, the profit margin forcasino operations increased from 36.3% during the year ended December 31, 2005to 49.3% during the year ended December 31, 2006 due to payroll and otheroperational expenses being proportionally lower during 2006 in comparison torevenue.  The percentage of expenses incomparison to revenue for the years ended December 31, 2006 and 2005 were27.7% and 34.9%, respectively, for payroll expenses and 22.5% and 26.1%,respectively, for other operational expenses.

 

*Food and beverage.*  Food and beverage revenue was $23.6 millionfor the year ended December 31, 2006 as compared to $6.2 million for 2005,an increase of 279.9%.  The increase infood revenues was a result of increased customer volume after the grandopening.  Beverage revenue (whichincludes complimentary beverages) increased by $7.9 million, or 381.6%, from$2.1 million during the year ended December 31, 2005.

 

Foodand beverage expenses increased from $6.1 million during the year ended December 31,2005 to $19.0 million during the year ended December 31, 2006, an increaseof $12.9 million.  The increase was dueto increases in payroll, cost of sales, and other operational expensesassociated with the increase in business volume and the increase in number offood and beverage outlets from five to ten after the grand opening.  The profit margin for food and beverageoperations increased from 1.6% during the year ended December 31, 2005 to19.7% during the year ended December 31, 2006 operational efficiencies inpayroll and cost of sales.

 

*Hotel and other.*  Hoteland other revenue (which includes hotel room revenue, retail, spa and othermiscellaneous revenue) increased by $9.3 million, or 69.5%, to $22.7 millionfor the year ended December 31, 2006 from $13.4 million for the year endedDecember 31, 2005.

 

Room revenueincreased to $16.3 million for the year ended December 31, 2006 comparedto $12.4 million in 2005.  For the monthsof February through December 2006, room revenue was $15.9 millionwith an occupancy rate of 79.7% and average daily room rate of $90.  This compares to room revenue of $11.2million for the same eleven months in 2005, with an occupancy rate of 84.0% andan average daily rate of $66.  Subsequentto the remodeling of the rooms, which were completed in February 2006, wehave been able to increase room rates due to the improved product; however,occupancy rates were not as strong due to the slow start-up in marketing ourrooms in the first two quarters of 2006. The occupancy rates have steadily climbed though each quarter beginningwith 66.3% in the period from February 3 to March 31,2006, then to73.9% in the second quarter, 80.7% in the third quarter and 83.4% in the fourthquarter of 2006.

 

Retailrevenue was $5.5 million or 24.2% of hotel and other revenue in the year ended December 31,2006 and has increased from $0.9 million during the year ended December 31,2005 due to the strength of Hooters brand merchandise.

 

Hoteland other expenses increased by 105.8% from $4.3 million during the year ended December 31,2005 to $8.8 million during the year ended December 31, 2006 due tosignificant increases in payroll and other expenses in hotel and retailoperations.  The profit margin for roomwas 61.3% during the year ended December 31, 2006 compared to 68.8% forthe same period in 2005 due to increases in payroll expense and upgraded roomamenities.  Retail sales generated aprofit margin of 35.3% in 2006.

 

*General and administrative.*  General and administrative expense includescosts associated with corporate marketing, information technology, finance,accounting, and property operations. General and administrative expense increased $10.1 million to $18.2million for the year ended December 31, 2006 compared to $8.1 million forthe year ended December 31, 2005. This increase was principally due to increases in advertising andmarketing expenses for the rebranding of the hotel casino and payroll

 

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expensesfor increased staffing under the Hooters Casino Hotel operations for the yearended December 31, 2006.

 

*Depreciation and amortization expense.*  Depreciation and amortization expense of $5.8million for the year ended December 31, 2006 increased by $3.5 million, or155.0%, from $2.3 million for the year ended December 31, 2005.  The increase in depreciation and amortizationexpense was due to additional depreciation of fixed asset additions placed inservice beginning February 3, 2006.

 

*Pre-opening expenses.*  Pre-opening expenses are costs associatedwith the start-up activities for the new Hooters Casino Hotel and consist ofsalaries and wages, legal, professional, general, and other generaladministrative expenses.  Pre-openingexpenses increased by $0.5 million to $5.3 million for the year ended December 31,2006 compared to $4.8 million during the year ended December 31, 2005,largely due to increased training expenses during the month of January 2006and the costs of the grand opening celebration for the Hooters Casino Hotel in February 2006.

 

*Related party royalties expenses.*  Beginning on February 3, 2006, relatedparty royalty fees were incurred pursuant to agreements with Hooters GamingCorporation, Lags Ventures, Inc., and Las Vegas Wings, Inc.  These related party royalties expensestotaled $1.5 million during the year ended December 31, 2006.  The payment of the related party royalties isrestricted under the Notes indenture. The fees can only be paid after the close of the fiscal year and only ifour debt coverage ration is 1.5 to 1 for that fiscal year.  The payments of the royalty fees are furtherlimited to the sum of 2% of revenue and 3% of EBITDA as defined in theindenture.

 

*Loss on disposal of assets.*  The loss on disposal of assets in 2006 of$1.2 million is the result of retiring and replacing certain old slot machinesand other equipment and carpeting on the casino floor in connection with theHooters Casino Hotel remodel.

 

*Interest income.* Interest income was $0.5 million for the year ended December 31,2006, compared to $2.0 million for the year ended December 31, 2005.  The decrease resulted from greater interestincome earned during 2005 on the investment of the $130.0 million in Notesproceeds.

 

*Interest expense.* Interest expense was $12.7 million for the year ended December 31,2006, compared to $10.2 million for the year ended December 31, 2005, anincrease of $2.5 million.  The increasein interest expense is largely attributable to twelve full months of interestexpense totaling $11.4 million on the $130.0 million in Notes during the yearended December 31, 2006 compared to nine full months of interest expensetotaling $8.5 million during the year ended December 31, 2005.

 

*Loss on extinguishment of debt.*  The loss on extinguishment of debt in 2005was related to the payoff of our bank loan with the proceeds of the old notes.

 

*Related party lease income.*  During the period from August 3, 2004through October 31, 2005, we leased the hotel casino to Eastern &Western under two separate lease agreements. Pursuant to the casino lease agreement, the casino, showroom, liquorservicing areas and other casino related areas were leased for $125,000 permonth.  Pursuant to the hotel leaseagreement for the hotel, restaurants, and other areas of the hotel casinoproperty, rental income was $250,000 per month, plus a percentage rent equal to100% of all revenues received by Eastern & Western from the operationof the hotel and restaurants, less operating expenses and working capitalreserves, as defined in the hotel lease agreement.  For the year ended December 31, 2005, atotal of $5.4 million was received in rental income under the casino and hotel leases.

 

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*Related party lease expense. *During theperiod from August 3, 2004 through October 31, 2005, Eastern &Western leased the hotel casino from us (see Related Party Lease Income in theparagraph above).  Rental expense of $5.4million was incurred under the casino and hotel leases for the year ended December 31,2005.

 

*Provision for income taxes.*  Income of the Hôtel San Rémo is included inthe tax return of S.I. Enterprises, Inc. The provision for income taxes was a benefit of $0.4 million forthe year ended December 31, 2005, predicated on loss before taxes of $1.0million.

 

155East Tropicana, LLC is a limited-liability company and is treated as apartnership for federal income tax purposes. Accordingly, a provision for federal income taxes is not recorded on 155East Tropicana, LLC’s consolidated financial statements.  Taxable income or loss will be included inthe income tax returns of the members.

 

***Liquidity and Capital Resources (155 East Tropicana, LLC)***

 

For the year ended December 31,2007, we used $6.3 million of cash in operating activities, largely due to ournet loss of $14.1 million, which was offset by $9.1 million of non-cashdepreciation and amortization charges, and payment-restricted related partyroyalty fees.

 

For the year ended December 31,2007, $0.9 million of cash was used in investing activities, as a result ofcapital expenditures.

 

Forthe year ended December 31, 2007, we were provided $6.8 million of cashfrom financing activities. We received $5.3 million in proceeds from issuanceof long-term debt and $3.5 million in payments related to the asset purchaseagreement. This was partially offset by $2.0 million in principal payments onequipment debt.

 

TheNotes’ indenture contains certain provisions which restrict or limit ourability to, among other things, incur more debt, pay dividends, redeem stock ormake other distributions, enter into transactions with affiliates or transferor sell assets.

 

We entered into our $15.0 million Credit Facility concurrently with theoffering of the old notes.  Our CreditFacility is a four-year revolving credit facility of $15.0 million, maturing onMarch 30, 2009, and currently has outstanding draws of $6.3 million at December 31,2007.  All outstanding principal andinterest under our Credit Facility is due and payable on March 30, 2009.

 

Weentered into equipment financing of $0.3 million during the year ended December 31,2007, of which $163,303 was outstanding at December 31, 2007.

 

Capitalexpenditures of approximately $1.0 million are anticipated in 2008.

 

Subsequentto December 31, 2007, we collected three $500,000 extension fee paymentsin January, February and March 2008. It is possible that we may receiveadditional extension fee payments of $500,000 each in April and May 2008if the Buyer elects to extend the closing date of the asset purchase beyond April30, 2008.

 

Webelieve that we have the flexibility to cover operational contingencies,working capital needs, capital expenditures, and debt service obligationsduring 2008 through the use of cash (which totaled $5.9 million at December 31,2007, including $3.8 million required in daily operations), our cash flow fromoperations, our ability to draw against our $15.0 million Credit Facility,other available equipment financing and the receipt of extension fee

 

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paymentscalled for under the Purchase Agreement that have been received subsequent to December 31,2007.

 

**ContractualObligations**

 

Thefollowing table summarizes the contractual commitments of 155 East Tropicana,LLC as of December 31, 2007:

 
| ** **                        | ** ** | **Payments Due By Year**   | ** ** |
|-----------------------------------|------------|----------------------------|------------|
| ** **                        | ** ** | **Total**                  | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                        | ** ** | **(dollars in thousands)** | ** ** |
| Long-term debt (1)                |       | $                          | 136,255    |   | $ | — |   | $ | 6,255 |   | $ | 130,000 |   | — |   |
| Equipment purchase agreements (2) |       | 2,332                      |       | 2,035 |   | 293 |   | 4 |   | — |   |
| Operating contracts (3)           |       | 6,134                      |       | 4,700 |   | 1,231 |   | 148 |   | 55 |   |
| Total                             |       | $                          | 144,721    |   | $ | 6,735 |   | $ | 7,779 |   | $ | 130,152 |   | $ | 55 |   |
|                                   |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          The long-term debtrepresents the $6.3 million in outstanding draws against our Credit Facility asof December 31, 2007 due on March 30, 2009 and the $130.0 millionNotes issued on March 29, 2005 and due on 2012.

 

(2)          We entered into variousequipment purchase agreements in connection with the renovation and rebrandingof the Hooters Casino Hotel.

 

(3)          Operating contractsrepresent various contracts for services in connection with the operations ofthe Hooters Casino Hotel.

 

      ***Critical AccountingPolicies and Estimates***

 

Managementhas identified the following critical accounting policies that affect the moresignificant judgments and estimates used in the preparation of 155 EastTropicana, LLC’s consolidated financial statements and Hôtel San Rémo’scombined financial statements.  Thepreparation of the financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and judgments that affect the reported amounts of assets andliabilities, revenue and expenses, and related disclosures of contingent assetsand liabilities.  On an on-going basis,management evaluates those estimates, including those related to assetimpairment, accruals for slot marketing points, compensation and relatedbenefits, revenue recognition, allowance for doubtful accounts, contingencies,and litigation.  These accountingpolicies are stated in the notes to the financial statements and in relevantsections of the management discussion and analysis.  These estimates are based on the informationcurrently available to management and on various other assumptions thatmanagement believes to be reasonable under the circumstances.  Actual results could vary from thoseestimates and estimates and assumptions may be changed in the future.  Changes in these estimates and assumptionsmay have a material affect on the results of operations and financial conditionof 155 East Tropicana, LLC and the results of operations and financialcondition of the Hôtel San Rémo.

 

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Webelieve that the following critical accounting policies affect significantjudgments and estimates used in the preparation of the consolidated financialstatements:

 

*Cash and Cash Equivalents*.  We consider all highly liquid investmentspurchased with original maturities of three months or less to be cashequivalents.  The carrying amount of cashand equivalents approximates its fair value.

 

*Accounts Receivable.* Accounts receivable are duewithin one year and are recorded net of amounts estimated to beuncollectible.  We reserve an estimatedamount for receivables to reduce the receivables to their net realizable valuewhich approximate fair value.  Historicalcollection rates and customer relationships of the previously operated HôtelSan Rémo were considered in determining the reserve for 155 East Tropicana,LLC.

 

*Inventories.*  Inventoriesare stated at the lower of cost (using the first-in, first-out method) ormarket values.

 

*Property and Equipment.*  Property and equipment are stated atcost.  Costs of improvements arecapitalized. Cost of normal repairs and maintenance are charged to expense asincurred.  Upon the sale or retirement ofproperty and equipment, the cost and related accumulated depreciation areremoved from the respective accounts, and the resulting gain or loss, if any,is included in the accompanying consolidated statements of operations.

 

Depreciationis provided on a straight-line basis over the estimated useful life of theassets.  The service lives of assets aregenerally 30 to 40 years for buildings and 3 to 10 years forfurniture and equipment.

 

Thecarrying values of our assets are reviewed when events or changes incircumstances indicate that the carrying amount of the asset may not berecoverable in accordance with Financial Accounting Standards Board, or theFASB Statement No. 144, Accounting for the Impairment or Disposal ofLong-lived Assets, or SFAS No. 144. Under SFAS No. 144, an asset impairment is determined to exist whenevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable and if estimated future cash flows, undiscountedand without interest charges, are less than the carrying amount.  If it is determined that an impairment hasoccurred, then an impairment loss is recognized in the consolidated statementof operations and the related assets are adjusted to their estimated fair valueless sales costs.

 

*Deferred Financing Costs.*  Deferred financing costs consist of loanorigination and commitment fees and are amortized to interest expense over theterm of the related financing on a straight line basis which approximates theeffective interest rate method.

 

*Intangible Assets.*  Intangible assets represent (1) thevalue of intellectual property related to the Hooters brand contributed to uspursuant to an assignment agreement with Florida Hooters LLC, (2) thevalue of the slot club customer list acquired from Eastern & Western,and (3) the excess of the purchase price over the fair market value of theHôtel San Rémo assets acquired, or Goodwill.

 

InJune 2001, the FASB issued Statement of Financial Accounting Standards No. 142,*Goodwill and Other Intangible Assets*, orSFAS No. 142. We evaluate the amortization periods and possible impairmentof its intangible assets in accordance with SFAS No. 142.  The intellectual property related to theHooters brand contributed to us and the Goodwill are intangible assets notsubject to amortization.  The slotcustomer list is being amortized using the straight line method over five years.

 

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*Jackpots and Prizes.* We have progressive slotmachines.  As coins are played, theamount available to win increases and will be paid out when the jackpot isawarded.  In accordance with industry practice,we record the liability and expense related to such progressives as incurred.

 

*Casino Revenues and Promotional Allowances.*  In accordance with industry practice, werecognize as casino revenue the net win from gaming activities, which is thedifference between gaming wins and losses. The retail value of rooms, food, and beverage furnished to customerswithout charge is included in gross revenues and then deducted as promotionalallowances.

 

*Participation Fees. *Participationfees paid to slot machine manufacturers are classified as a reduction ofrevenue instead of a casino expense.

 

*Player Club Points.*  Our slot club allows customers to earncertain complimentary products and services, based on the volume of thecustomer’s gaming activity.   155 East Tropicana,LLC and Hôtel San Rémo have recorded a liability for the estimated cost of thecomplimentary products and services earned by customers.

 

155East Tropicana, LLC’s slot club program allows customers to redeem pointsearned from their gaming activity for complimentary food, beverage, rooms,entertainment, and merchandise.  At thetime redeemed, the retail value of complimentaries under the program isrecorded as revenue with a corresponding offsetting amount included inpromotional allowances.  The costassociated with complimentary food, beverage, rooms, entertainment, andmerchandise redeemed under the program is recorded in casino costs andexpenses.  Beginning in March 2007,slot points may be redeemed for cash and the cash rebates are recorded as apromotional allowance,

 

*Advertising.*  Prepaidadvertising costs are expensed the first time the advertising takes place.  Advertising costs are included in general andadministrative expenses.

 

*Capitalized Interest.*  The interest cost associated with a majorconstruction project is capitalized and included in the cost of theproject.  When no debt is incurredspecifically for a project, interest is capitalized on amounts expended on theproject using the weighted-average cost of our outstanding borrowings.

 

*Income Taxes.*  155East Tropicana, LLC is a limited-liability company and is taxed as apartnership for federal income tax purposes. Accordingly, no provision for federal income taxes has been recorded inthe accompanying consolidated financial statements since the taxable income orloss is included in the income tax return of the members.

 

HôtelSan Rémo accounted for income taxes under Statement of Financial AccountingStandards (“SFAS”) No. 109, *Accounting for IncomeTaxes*, or SFAS No. 109, whereby deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statements carrying amounts of existingassets and liabilities and their respective tax bases.  Deferred tax assets and liabilities weremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled.  Under SFAS No. 109, theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that included the enactment date.

 

*Pre-opening Expenses.*  Pre-opening costs are expensed as incurred,consistent with Statement of Position 98-5, Reporting on the Costs of Start-upActivities.

 

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*Use of Estimates.*  Thepreparation of financial statements in conformity with generally acceptedaccounting principles in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts revenues and expenses duringthe reporting periods. Actual results could differ from those estimates.

 

*Reclassifications.*  Certain reclassifications, having no effecton net loss, have been made to the previously issued consolidated financialstatements to conform to the current period’s presentation of the Company’sfinancial statements.

 

*Recently Issued AccountingPronouncements.*

 

In September 2006, theFinancial Accounting Standards Board, (“FASB”) issued SFAS No. 157 *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value in GAAP, andexpands disclosures about fair value measurements.  SFAS 157 does not require any new fair valuemeasurements, but provides guidance on how to measure fair value by providing afair value hierarch used to classify the source of the information.  SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007 andinterim periods within these fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FAS157-2, which defers the effective date of SFAS 157 to fiscal years beginningafter November 15, 2008, and interim periods within those fiscal years,for nonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value in an entity’s financial statements on a recurringbasis.  We are evaluating SFAS 157 andhave not yet determined the determined the impact the adoption will have on theconsolidated financial statements.

 

In February 2007, theFASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities*.SFAS 159 permits entities to choose to measure many financial instrumentsand certain other items at fair value. The objective of the guidance is toimprove financial reporting by providing entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. SFAS 159 is effective as of the beginning of the first fiscal yearafter November 15, 2007. Early adoption is permitted as of the beginningof the fiscal year on or before November 15, 2007, provided the provisionsof SFAS 157 are also applied.  We areevaluating our options provided for under this statement and their potentialimpact on the consolidated financial statements when implemented.

 

In December 2007, theFASB issued SFAS 160, “Noncontrolling Interests in Consolidated FinancialStatements-An Amendment of ARB No. 51”. SFAS 160 establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary.  Specifically, this statementrequires the recognition of a noncontrolling interest as equity in theconsolidated financial statements and separate from the parent’s equity.  In addition, the amount of net income attributableto the noncontrolling interest should be included in consolidated net income onthe face of the income statement.  SFAS160 is effective for fiscal years, and interim periods within those fiscalyears, beginning on or after December 15, 2008.  Early adoption is prohibited.  We are evaluating SFAS 160 and have not yetdetermined the impact the adoption will have on the consolidated financialstatements.

 

In December 2007, theFASB issued SFAS 141R, “Business Combinations”. Under SFAS 141R, an acquiring entity will be required to recognize allthe assets acquired and liabilities assumed in a

 

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transaction at theacquisition-date fair value, with limited exceptions, replacing SFAS 141’scost-allocation process.  SFAS 141R alsoincludes a substantial number of new disclosure requirements.  SFAS 141R is to be applied prospectively tobusiness combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008.  Early adoption is prohibited.  We will adopt SFAS 141R in the first quarterof 2009.  The impact on our accountingfor future business combinations once adopted will be dependent uponacquisitions that are made in the future.

 

**ITEM 7A.               Quantitativeand Qualitative Disclosures About Market Risk.**

 

Thefollowing discusses our exposure to market risk related to changes in interestrates, equity prices and foreign currency exchange rates.  We do not believe that their respectiveexposure to market risk is material.

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices.  At December 31, 2007, we had$130,000,000 aggregate principal amount of the Notes, slot equipment purchaseagreements of $2.0 million carrying an imputed interest rate of 3.33%, andhotel equipment purchase agreements of $0.3 million carrying an imputedinterest rate of 11.88%.   The Notescarry a fixed interest rate of 8.75 %, provided no events of default haveoccurred.  Since the Notes and equipmentpurchase agreements have fixed interest rates, there is no market riskassociated with these loans.  We havemarket risk associated with funds that may be borrowed on our$15.0 million Credit Facility, due to an interest rate that floats withthe LIBOR or prime rate.  The term of ourCredit Facilitywill mature on March 30, 2009.  At December 31, 2007, $6.3 million wasoutstanding under the variable rate Credit Facility, carrying interest at8.54%.

 

**We do not have any significantforeign currency exchange rate risk or commodity price risk and do notcurrently trade any market sensitive instruments.**

 

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## **ITEM 8.**                             FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA.

## ** **

**INDEXTO FINANCIAL STATEMENTS**

** **

Thefollowing consolidated financial statements of 155 East Tropicana, LLC and thecombined financial statements of HôtelSan Rémo Casino and Resort are presented herein on the pages indicated:

 
| **155  EAST TROPICANA, LLC**                   |                                                       |
|------------------------------------------------|------------------------------------------------------------|
|                                           |                                                       |   |
| ** **                                     | **AUDITED CONSOLIDATED FINANCIAL STATEMENTS:**             | ** ** |
| ** **                                     | ** **                                                 | ** ** |
|                                           | Report of Independent  Registered Public Accounting Firm   | 48 |
|                                           |                                                       |   |
|                                           | Consolidated Balance Sheets                                | 49 |
|                                           |                                                       |   |
|                                           | Consolidated Statements of  Operations                     | 50 |
|                                           |                                                       |   |
|                                           | Consolidated Statements of  Members’ (Deficit) Equity | 51 |
|                                           |                                                       |   |
|                                           | Consolidated Statements of  Cash Flows                     | 52 |
|                                           |                                                       |   |
|                                           | Notes  to Consolidated Financial Statements                | 54 |
|                                           |                                                       |   |
| **HÔTEL SAN RÉMO CASINO AND RESORT** |                                                       |
|                                           |                                                       |   |
|                                           | **AUDITED COMBINED FINANCIAL  STATEMENTS:**                |   |
|                                           |                                                       |   |
|                                           | Report of  Independent Registered Public Accounting Firm   | 70 |
|                                           |                                                       |   |
|                                           | Combined Balance  Sheet                                    | 71 |
|                                           |                                                       |   |
|                                           | Combined Statements  of Operations                         | 72 |
|                                           |                                                       |   |
|                                           | Combined Statements  of Division Equity (Deficit)          | 73 |
|                                           |                                                       |   |
|                                           | Combined Statements  of Cash Flows                         | 74 |
|                                           |                                                       |   |
|                                           | Notes to Combined  Financial Statements                    | 75 |
|                                                |                                                            |  |  |

 

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### **Report ofIndependent Registered Public Accounting Firm**

### ** **

Tothe Members of 155 East Tropicana, LLC

 

Wehave audited the accompanying consolidated balance sheets of 155 EastTropicana, LLC and subsidiary as of December 31, 2007 and 2006, and therelated consolidated statements of operations, members’ equity (deficit), andcash flows for each of the three years in period ended December 31,2007.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal controlover financial reporting.  Accordingly,we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position of 155East Tropicana, LLC and subsidiary at December 31, 2007 and 2006, and theconsolidated results of their operations and its cash flows for each of thethree years in the period ended December 31, in conformity with U.S.generally accepted accounting principles.

 

/s/ Ernst & Young LLP

 

LasVegas, Nevada

March 19,2008

 

48

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### **155 EASTTROPICANA, LLC (A NEVADA LIMITED-LIABILITY COMPANY)**

### ** **

### **CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                        | ** ** | **December 31,  2007** | ** **  | **December 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| **Assets**                                                                                                        | ** ** | ** **                  | ** **  | ** **                  | ** ** |
| Current assets:                                                                                                   |       |                        |        |                        |       |
| Cash and cash equivalents                                                                                         |       | $                           | 5,861,991   |                        | $          | 6,164,192 |   |
| Accounts receivable, net of allowance for doubtful accounts of  $90,831and $99,921 in 2007 and 2006, respectively |       | 1,880,454                   |        | 1,609,756                   |       |
| Inventories                                                                                                       |       | 931,029                     |        | 846,651                     |       |
| Prepaid expenses                                                                                                  |       | 1,576,356                   |        | 1,569,980                   |       |
| Total current assets                                                                                              |       | 10,249,830                  |        | 10,190,579                  |       |
| Property and equipment, net                                                                                       |       | 117,084,512                 |        | 122,135,784                 |       |
| Other long-term assets:                                                                                           |       |                        |        |                        |       |
| Deferred financing costs                                                                                          |       | 4,971,161                   |        | 6,366,625                   |       |
| Intangible assets, net                                                                                            |       | 6,505,209                   |        | 6,557,119                   |       |
| Other assets                                                                                                      |       | 336,022                     |        | 343,273                     |       |
| Total other long-term assets                                                                                      |       | 11,812,392                  |        | 13,267,017                  |       |
| Total assets                                                                                                      |       | $                           | 139,146,734 |                        | $          | 145,593,380 |   |
|                                                                                                              |       |                        |        |                        |       |
| **Liabilities and Members’ Equity**                                                                          | ** ** | ** **                  | ** **  | ** **                  | ** ** |
| Current liabilities:                                                                                              |       |                        |        |                        |       |
| Accounts payable                                                                                                  |       | $                           | 2,974,233   |                        | $          | 2,969,064 |   |
| Accrued interest payable                                                                                          |       | 2,843,750                   |        | 2,843,750                   |       |
| Accrued liabilities                                                                                               |       | 1,399,930                   |        | 2,266,740                   |       |
| Purchase deposit and extension payments                                                                           |       | 3,500,000                   |        | —                      |       |
| Current portion of long-term debt                                                                                 |       | 2,035,273                   |        | 1,859,319                   |       |
| Total current liabilities                                                                                         |       | 12,753,186                  |        | 9,938,873                   |       |
| Related party royalties payable                                                                                   |       | 2,848,796                   |        | 1,461,881                   |       |
| Long-term debt                                                                                                    |       | 136,552,084                 |        | 133,081,099                 |       |
| Total liabilities                                                                                                 |       | 152,154,066                 |        | 144,481,853                 |       |
|                                                                                                              |       |                        |        |                        |       |
| Commitments and  contingencies                                                                                    |       |                        |        |                        |       |
|                                                                                                              |       |                        |        |                        |       |
| Members’ (deficit) equity:                                                                                   |       |                        |        |                        |       |
| Membership interests                                                                                              |       | 34,333,375                  |        | 34,333,375                  |       |
| Accumulated deficit                                                                                               |       | (47,340,707                 | )           | (33,221,848                 | )          |
|                                                                                                              |       | (13,007,332                 | )           | 1,111,527                   |       |
| Total liabilities and members’ (deficit) equity                                                              |       | $                           | 139,146,734 |                        | $          | 145,593,380 |   |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

49

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** **

**155 EastTropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                                                                                                                          | ** ** | **Year Ended  December 31,  2007** | ** **  | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|-------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                          | ** ** | ** **                              | ** **  | ** **                              | ** ** | ** **                              | ** ** |
| Operating revenues:                                                                                                                                 |       |                                    |        |                                    |       |                                    |       |
| Casino                                                                                                                                              |       | $                                       | 23,551,180  |                                    | $          | 25,830,265                              |       | $ | 993,175 |   |
| Food, beverage and entertainment                                                                                                                    |       | 23,318,248                              |        | 23,620,776                              |       | 662,044                                 |       |
| Hotel and other                                                                                                                                     |       | 24,483,805                              |        | 22,696,316                              |       | 1,174,324                               |       |
| Related party lease income                                                                                                                          |       | —                                  |        | —                                  |       | 5,439,324                               |       |
|                                                                                                                                                |       | 71,353,233                              |        | 72,147,357                              |       | 8,268,867                               |       |
| Less promotional  allowances                                                                                                                        |       | (6,315,609                              | )           | (5,436,431                              | )          | (301,841                                | )          |
| Net operating revenues                                                                                                                              |       | 65,037,624                              |        | 66,710,926                              |       | 7,967,026                               |       |
|                                                                                                                                                |       |                                    |        |                                    |       |                                    |       |
| Operating expenses:                                                                                                                                 |       |                                    |        |                                    |       |                                    |       |
| Casino                                                                                                                                              |       | 13,440,537                              |        | 13,103,972                              |       | 1,053,755                               |       |
| Food, beverage and entertainment                                                                                                                    |       | 17,721,954                              |        | 18,973,914                              |       | 1,140,854                               |       |
| Hotel and other                                                                                                                                     |       | 9,222,140                               |        | 8,785,883                               |       | 641,254                                 |       |
| General and administrative                                                                                                                          |       | 17,977,767                              |        | 18,248,203                              |       | 1,444,397                               |       |
| Depreciation and amortization                                                                                                                       |       | 6,249,991                               |        | 5,841,526                               |       | 1,956,172                               |       |
| Pre-opening expenses                                                                                                                                |       | —                                  |        | 5,292,834                               |       | 4,824,498                               |       |
| Related party royalties expense                                                                                                                     |       | 1,386,914                               |        | 1,459,162                               |       | —                                  |       |
| Loss on disposal of assets                                                                                                                          |       | —                                  |        | 1,199,470                               |       | —                                  |       |
| Total operating expenses                                                                                                                            |       | 65,999,303                              |        | 72,904,964                              |       | 11,060,930                              |       |
| Operating loss                                                                                                                                      |       | (961,679                                | )           | (6,194,038                              | )          | (3,093,904                              | )          |
|                                                                                                                                                |       |                                    |        |                                    |       |                                    |       |
| Other income (expense):                                                                                                                             |       |                                    |        |                                    |       |                                    |       |
| Interest expense, net of capitalized interest of $0, $202,873 and $692,059  for the years ended December 31, 2007, 2006 and 2005, respectively |       | (13,248,133                             | )           | (12,745,839                             | )          | (10,155,864                             | )          |
| Interest income                                                                                                                                     |       | 90,953                                  |        | 498,607                                 |       | 1,629,590                               |       |
| Loss on extinguishment of debt                                                                                                                      |       | —                                  |        | —                                  |       | (2,246,526                              | )          |
| Other income (expense),  net                                                                                                                        |       | (13,157,180                             | )           | (12,247,232                             | )          | (10,772,800                             | )          |
| Net loss                                                                                                                                            |       | $                                       | (14,118,859 | )                                       | $          | (18,441,270                             | )          | $ | (13,866,704 | ) |

 

*The accompanying notes are anintegral part of these consolidated financial**statements*

 

50

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** **

**155 EastTropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATED STATEMENTS OF MEMBERS’ (DEFICIT)EQUITY**

** **
| ** **                                             | ** ** | **Florida Hooters  LLC** | ** **  | **EW Common  LLC** | ** ** | **Total**   | ** ** |
|--------------------------------------------------------|------------|--------------------------|-------------|--------------------|------------|-------------|------------|
| ** **                                             | ** ** | ** **               | ** **  | ** **         | ** ** | ** **  | ** ** |
| Balance at  December 31, 2004                     |       | $                        | 5,624,126   |               | $          | 19,695,375  |       | $ | 25,319,501 |   |
|                                                   |       |                     |        |               |       |        |       |
| Florida Hooters LLC:                                   |       |                     |        |               |       |        |       |
| Assignment of agreements for intellectual property     |       | 3,100,000                |        | —             |       | 3,100,000   |       |
|                                                   |       |                     |        |               |       |        |       |
| EW Common LLC:                                         |       |                     |        |               |       |        |       |
| Deemed capital contribution                            |       | —                   |        | 5,000,000          |       | 5,000,000   |       |
|                                                   |       |                     |        |               |       |        |       |
| Net loss during the year  ended December 31, 2005 |       | (9,244,469               | )           | (4,622,235         | )          | (13,866,704 | )          |
|                                                   |       |                     |        |               |       |        |       |
| Balance at  December 31, 2005                     |       | (520,343                 | )           | 20,073,140         |       | 19,552,797  |       |
|                                                   |       |                     |        |               |       |        |       |
| Net loss during the year  ended December 31, 2006 |       | (12,294,180              | )           | (6,147,090         | )          | (18,441,270 | )          |
|                                                   |       |                     |        |               |       |        |       |
| Balance at  December 31, 2006                     |       | (12,814,523              | )           | 13,926,050         |       | 1,111,527   |       |
|                                                   |       |                     |        |               |       |        |       |
| Net loss during the year  ended December 31, 2007 |       | (9,412,573               | )           | (4,706,286         | )          | (14,118,859 | )          |
|                                                   |       |                     |        |               |       |        |       |
| Balance at  December 31, 2007                     |       | $                        | (22,227,096 | )                  | $          | 9,219,764   |       | $ | (13,007,332 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

51

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** **

**155 EastTropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                       | ** ** | **Year Ended  December 31,  2007** | ** **  | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------|-------------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                                             |       |                                    |        |                                    |       |                                    |       |
| **Cash Flow From Operating  Activities**                                         | ** ** | ** **                              | ** **  | ** **                              | ** ** | ** **                              | ** ** |
| Net loss                                                                         |       | $                                       | (14,118,859 | )                                       | $          | (18,441,270                             | )          | $ | (13,866,704 | ) |
| Adjustments to reconcile net loss to net cash provided by operating  activities: |       |                                    |        |                                    |       |                                    |       |
| Depreciation and amortization                                                    |       | 6,249,991                               |        | 5,841,526                               |       | 1,956,172                               |       |
| Amortization of debt issuance costs                                              |       | 1,395,464                               |        | 1,299,484                               |       | 1,164,026                               |       |
| Amortization of intangible asset                                                 |       | 51,910                                  |        | 51,909                                  |       | 8,652                                   |       |
| Loss on extinguishment of debt                                                   |       | —                                  |        | —                                  |       | 2,246,526                               |       |
| Loss on disposal of assets                                                       |       | —                                  |        | 1,199,470                               |       | —                                  |       |
| Changes in assets and liabilities:                                               |       |                                    |        |                                    |       |                                    |       |
| Accounts receivable                                                              |       | (270,698                                | )           | (961,980                                | )          | (639,476                                | )          |
| Inventories                                                                      |       | (84,378                                 | )           | (700,312                                | )          | (146,339                                | )          |
| Prepaid expenses                                                                 |       | (6,376                                  | )           | (794,144                                | )          | (719,065                                | )          |
| Accounts payable                                                                 |       | 5,169                                   |        | (354,035                                | )          | 3,323,099                               |       |
| Accrued interest payable                                                         |       | —                                  |        | (20,646                                 | )          | 2,864,396                               |       |
| Accrued liabilities                                                              |       | (866,810                                | )           | 882,091                                 |       | 1,384,649                               |       |
| Related party royalties payable                                                  |       | 1,386,915                               |        | 1,461,881                               |       | —                                  |       |
| Net cash used in operating  activities                                           |       | (6,257,672                              | )           | (10,536,026                             | )          | (2,424,064                              | )          |
|                                                                             |       |                                    |        |                                    |       |                                    |       |
| **Cash Flow From Investing  Activities**                                         | ** ** | ** **                              | ** **  | ** **                              | ** ** | ** **                              | ** ** |
| Acquisition of Hôtel San  Rémo                                         |       | —                                  |        | —                                  |       | (2,158,131                              | )          |
| Capital expenditures                                                             |       | (886,100                                | )           | (19,693,731                             | )          | (32,814,738                             | )          |
| Change in construction  payable                                                  |       | —                                  |        | (6,034,450                              | )          | 6,034,450                               |       |
| Change in restricted cash                                                        |       | —                                  |        | 29,345,513                              |       | (25,345,513                             | )          |
| Decrease (increase) in  other assets                                             |       | 7,251                                   |        | 518,292                                 |       | (761,565                                | )          |
| Net cash (used in)  provided by investing activities                             |       | $                                       | (878,849    | )                                       | $          | 4,135,624                               |       | $ | (55,045,497 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

52

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**155 EastTropicana, LLC (A Nevada Limited-Liability Company)**

 

### **CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**

** **
| ** **                                                                                           | ** ** | **Year Ended  December 31,  2007** | ** ** | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                                                                 |       |                                    |       |                                    |       |                                    |       |
| **Cash Flow From Financing  Activities**                                                             | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Payment of debt financing  costs                                                                     |       | $                                       | —     |                                    | (379,370   | )                                       | (7,907,213 | ) |
| Extinguishment of debt                                                                               |       | —                                  |       | —                                  |       | (48,500,000                             | )          |
| Loan penalties from  extinguishment of debt                                                          |       | —                                  |       | —                                  |       | (1,361,750                              | )          |
| Proceeds from issuance of  long-term debt                                                            |       | 5,342,955                               |       | 912,610                                 |       | 130,000,000                             |       |
| Due to/from Hôtel San Rémo                                                                 |       | —                                  |       | 30,508                                  |       | (1,790,942                              | )          |
| Principal payments on  equipment purchase agreements                                                 |       | (2,008,635                              | )          | (2,190,539                              | )          | —                                  |       |
| Purchase deposit and  extension payments                                                             |       | 3,500,000                               |       | —                                  |       | —                                  |       |
| Net cash provided by (used  in) financing activities                                                 |       | 6,834,320                               |       | (1,626,791                              | )          | 70,440,095                              |       |
|                                                                                                 |       |                                    |       |                                    |       |                                    |       |
| (Decrease) increase in  cash and cash equivalents                                                    |       | (302,201                                | )          | (8,027,193                              | )          | 12,970,534                              |       |
| Cash and cash equivalents,  beginning of period                                                      |       | 6,164,192                               |       | 14,191,385                              |       | 1,220,851                               |       |
| Cash and cash equivalents,  end of period                                                            |       | $                                       | 5,861,991  |                                    | $          | 6,164,192                               |       | $ | 14,191,385 |   |
|                                                                                                 |       |                                    |       |                                    |       |                                    |       |
| **Supplemental disclosure of cash  flow information**                                                | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Cash paid for interest,  net of capitalized interest                                                 |       | $                                       | 11,852,669 |                                    | $          | 12,766,485                              |       | $ | 6,817,694 |   |
|                                                                                                 |       |                                    |       |                                    |       |                                    |       |
| Assets acquired through  equipment purchase agreements                                               |       | $                                       | 312,619    |                                    | $          | 6,218,347                               |       | $ | — |   |
|                                                                                                 |       |                                    |       |                                    |       |                                    |       |
| Noncash investing and  financing activities:                                                         |       |                                    |       |                                    |       |                                    |       |
| Contribution by Florida Hooters LLC of intangible assets pursuant to  assignment agreements          |       | $                                       | —     |                                    | $          | —                                  |       | $ | 3,100,000 |   |
|                                                                                                 |       |                                    |       |                                    |       |                                    |       |
| Deemed capital contribution - issuance of membership interest with  priority return to EW Common LLC |       | $                                       | —     |                                    | $          | —                                  |       | $ | 5,000,000 |   |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

53

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

### ** **

**December 31, 2007**

 

**1.  Organizational and Basis of Presentation**

** **

155 East Tropicana, LLC, aNevada limited-liability company (the “Company”) was incorporated on June 17,2004 to acquire the real and personal property of the Hôtel San Rémo Casino andResort (the “Hôtel San Rémo”) in Las Vegas, Nevada with the intention ofrenovating the existing casino and hotel facility with a “Hooters” entertainmentconcept and theme.  The renovations werecompleted and the Hôtel San Rémo property was reopened as the new HootersCasino Hotel on February 3, 2006. The Company’s business is concentrated at the one casino and hotelproperty in Las Vegas, Nevada.  Therenovations were financed by the Company and its wholly owned subsidiary, 155East Tropicana Finance Corp. through a $130 million Senior Secured Notesoffering on March 29, 2005.  TheCompany’s membership interests are held two-thirds through Florida Hooters LLCand one-third through EW Common LLC.  Theinitial capitalization of the Company was provided by Florida Hooters LLC inthe form of a $5.1 million cash contribution and the assignment of rightswith respect to the Hooters trademark and logo and other intellectual propertyand by EW Common LLC in the form of a $25.0 million deemed capitalcontribution.  The deemed capitalcontribution from EW Common LLC carries with it a priority return of four percenton the contribution annually as described in Note 10.  The payment of this priority return issubject to meeting certain financial covenants associated with the Company’sdebt.

 

Florida Hooters LLC is ajoint venture between Hooters Gaming LLC and Lags Ventures, LLC.  Hooters Gaming LLC is owned by the holders oflicenses to operate Hooters restaurants in the Tampa Bay, Florida, Chicago,Illinois and downtown Manhattan in New York as well as for the sale ofwholesale foods and calendars and Nevada hotel/gaming and includes most of theoriginal founders of the Hooters brand. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 40 Hooters restaurants, publish Hooters calendars and operate a Hootersfood business.  Lags Ventures, LLC isowned by a holder of the license rights to Hooters restaurants in South Floridaand the State of Nevada.  The owner ofLags Ventures, LLC is also the founder of the Dan Marino concept restaurantsand owns and operates two Dan Marino concept restaurants.

 

EW Common LLC is owned 90%by Eastern & Western Hotel Corporation (“Eastern & Western”)and 10% by Michael J. Hessling, president of the Company.  Eastern & Western and its affiliatesowned the real property and non-gaming assets of Hôtel San Rémo from November 1988until the Company’s acquisition of the Hôtel San Rémo in August 2004.

 

Florida Hooters LLC and EWCommon LLC entered into a joint venture agreement for the purpose of formingthe Company and documenting the terms of their investments and businessventure.  Under the terms of the joint ventureagreement, the venture progressed in three stages.  The first stage involved the formation of theCompany and the conveyance of all the real and non-gaming personal

 

54

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**155 East Tropicana, LLC**

**(A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**1.  Organizational andBasis of Presentation (continued)**

 

property owned by andassociated with the Hôtel San Rémo, the leaseback under operating leasearrangements of these assets to Eastern & Western pursuant to thecasino and hotel lease agreements described in Note 8, and thecontribution through assignment agreements of certain intellectual propertyrights to the Company by the respective members of Florida Hooters LLC.  The second stage related to the raising offinancing to fund the redesign and renovation of the Hôtel San Rémo into theHooters Casino Hotel, the refinancing of the Company’s current debt structureand other working capital requirements, which was completed on March 29,2005.  The final stage involved thesecuring of all licenses necessary to conduct gaming at the hotel casino andthe subsequent termination of the hotel and casino leases.  In October 2005, the Company secured thenecessary gaming and liquor licenses and on November 1, 2005, assumed theoperations of the existing Hôtel San Rémo. The hotel and casino leases with Eastern & Western wereterminated on October 31, 2005.

 

Pursuant to the jointventure agreement, Florida Hooters LLC and EW Common LLC entered into anoperating agreement.  Under the terms ofthe operating agreement, Florida Hooters LLC has the right to appoint sixmanagers and EW Common LLC has the right to appoint three managers to amanagement board.  Certain transactions,including key operational matters, the sale of all or substantially all of theCompany’s assets, a merger or consolidation and various governance mattersrequire the unanimous approval of the management board.

 

Prior to November 1,2005, the Company had conducted no business other than in connection with theacquisition and subsequent leasing of the Hôtel San Rémo, and was considered adevelopment stage company.  The Hôtel SanRémo is a division of S.I. Enterprises, Inc., a Nevada corporation.  Through October 31, 2005, Eastern &Western held the gaming license in Nevada and owned all gaming assets used byHôtel San Rémo.  Commencing November 1,2005, all operations, assets and liabilities of the former Hôtel San Rémo hoteland casino are included in the Company’s financial statements, and effectivethat date the Company was no longer in the development stages.

 

On February 3, 2006,the new Hooters Casino Hotel was opened for business.  The Hooters CasinoHotel features a casino floor with 679 slot and video poker machines, 33 tablegames, 696 hotel rooms including 17 suites, a tropical pool area, retailoutlets, a day spa, and dining and entertainment options which include aHooters restaurant, and Dan Marino’s restaurant, (which began offering 24 hourservice as of October 24, 2007, when the coffee shop was closed) a sportsbar, and several bars and Night Owl Showroom. The renovations included aredesign of the main entrance, a renovation and expansion of the casino andrestaurant areas, a remodel of the hotel rooms and a renovation and expansionof the pool area.

 

Significant intercompanytransactions between the Company and its wholly owned subsidiary have beeneliminated in consolidation.

 

55

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**155 East Tropicana, LLC**

**(A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**2.  Summary ofSignificant Accounting Principles**

 

*Cash and Cash Equivalents.*  The Company considers all highly liquid investmentspurchased with original maturities of three months or less to be cashequivalents.  The carrying amount of cashand equivalents approximates its fair value.

 

*Accounts Receivable.* Accountsreceivable are due within one year and are recorded net of amounts estimated tobe uncollectible.  The Company reservesan estimated amount for receivables to reduce the receivables to their netrealizable value which approximate fair value. Historical collection rates and customer relationships of the previouslyoperated Hôtel San Rémo were considered in determining the reserve.  Bad debt expense was $160,880, $ 233,027, and$10,000 for the years ended December 31, 2007 and 2006 and 2005.

 

*Inventories.*  Inventories are stated at the lower of cost(using the first-in, first-out method) or market value.

 

*Property and Equipment.*  Property and equipment are stated atcost.  Costs of improvements arecapitalized. Cost of normal repairs and maintenance are charged to expense asincurred.  Upon the sale or retirement ofproperty and equipment, the cost and related accumulated depreciation areremoved from the respective accounts, and the resulting gain or loss, if any,is included in the accompanying consolidated statements of operations.

 

Depreciation is provided ona straight-line basis over the estimated useful life of the assets.  The service lives of assets are generally 30to 40 years for buildings and 3 to 10 years for furniture andequipment.

 

The carrying values of theCompany’s assets are reviewed when events or changes in circumstances indicatethat the carrying amount of the asset may not be recoverable in accordance with*Financial Accounting Standards Board (FASB)Statement No. 144, Accounting for the Impairment or Disposal of Long-livedAssets*.  Under SFAS No. 144,an asset impairment is determined to exist when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable and if estimated future cash flows, undiscounted and withoutinterest charges, are less than the carrying amount.  If it is determined that an impairment hasoccurred, then an impairment loss is recognized in the consolidated statementof operations and the related assets are adjusted to their estimated fair valueless sales costs.

 

56

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**155 East Tropicana, LLC**

**(A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**2.  Summary ofSignificant Accounting Principles (continued)**

 

*Deferred Financing Costs.*  Deferred financing costs consist of loanorigination and commitment fees and are amortized to interest expense over theterm of the related financing on a straight line basis which approximates theeffective interest rate method.

 

*Intangible Assets.*  Intangible assets represent (1) thevalue of intellectual property related to the Hooters brand contributed to theCompany pursuant to an assignment agreement with Florida Hooters LLC, (2) thevalue of the slot club customer list acquired for Eastern & Western,and (3) the excess of the purchase price over the fair market value of theassets acquired (“Goodwill”).  Theintellectual property related to the Hooters brand contributed to the Companyand the Goodwill are intangible assets not subject to amortization.  The slot customer list is being amortizedusing the straight line method over five years.

 

In accordance with SFAS 142, “Goodwill and OtherIntangible Assets”, the Company tests for impairment of goodwill andindefinite-lived intangible assets annually. For the years ending December 31,2007 and 2006, we utilized the Income Approach for goodwill, which focuses onthe income-producingcapability of the respective property during the fourth quarter of each fiscalyear. The underlying premise of this approach is that the value of an asset canbe measured by the present worth of the net economic benefit (cash receiptsless cash outlays) to be received over the life of the subject asset. The stepsfollowed in applying this approach include estimating the expected after-taxcash flows attributable to the property and converting these after-tax cashflows to present value through discounting. The discounting process uses a rateof return, which accounts for the both the time value of money and investmentrisk factors. The present value of the after-tax cash flows is the totaled toarrive at an indication of the fair value of the assets. If the fair value ofthe assets exceeds the carrying value, the impairment is measured based on thedifference between the calculated fair value and the carrying value. Wedetermined that there was no impairment during 2007 or 2006.

** **

*Jackpots and Prizes.* The Companyhas progressive slot machines.  As coinsare played, the amount available to win increases and will be paid out when thejackpot is awarded.  In accordance withindustry practice, the Company records the liability and expense related tosuch progressives as incurred.

 

*Participation Fees. *Participation fees paid toslot machine manufacturers are classified as a reduction of revenue.  During the years ended December 31,2007, 2006 and 2005, the Company paid participation fees totaling $1,442,263,$1,245,181 and $34,040, respectively.

 

*Casino Revenues and PromotionalAllowances*.  Inaccordance with industry practice, the Company recognizes as casino revenue thenet win from gaming activities, which is the difference between gaming wins andlosses.  The retail value of rooms, food,and beverage furnished to customers without charge is included in grossrevenues and then deducted as promotional allowances.

 

57

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**155 East Tropicana, LLC**

**(A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**2.  Summary ofSignificant Accounting Principles (continued)**

 

The estimated departmentalcost of providing such promotional allowances is included in casino costs andexpenses and consists of the following for the years ended December 31,2007, 2006 and 2005 (dollars in thousands):

 
| ** **        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Food and Beverage |       | $        | 1,028      |     | $          | 1,141    |       | $ | 93 |   |
| Hotel and other   |       | 428      |       | 316      |       | 30       |       |
|              |       | $        | 1,456      |     | $          | 1,457    |       | $ | 123 |   |

 

*Player Club Points.*  The Company’s slot club allows customers toearn certain complimentary products and/or cash, based on the volume of thecustomer’s gaming activity.  The Companyhas recorded a liability for the estimated cost of the products and/or cashearned by customers.

 

The Company’s slot clubprogram allows customers to redeem points earned from their gaming activity forcomplimentary food, beverage, rooms, entertainment, and merchandise.  At the time redeemed, the retail value ofcomplimentaries under the program is recorded as revenue with a correspondingoffsetting amount included in promotional allowances.  The cost associated with complimentary food,beverage, rooms, entertainment, and merchandise redeemed under the program isrecorded in casino operating expenses.

 

In February 2001, theEmerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board(“FASB”) reached a consensus in EITF Issue No. 00-22, “Accounting for ‘Points’and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offersfor Free Products to be Delivered in the Future.”  EITF Issue No. 00-22 requires that theredemption of points for cash be recognized as a reduction of revenue.  In accordance with EITF Issue No. 00-22,the Company has recorded the retail value of points earned and redeemed forcomplimentary services/cash rebates as promotional allowances.  Such amounts totaled $535,905, $114,150 and$13,895 for the years ended December 31, 2007, 2006 and 2005 respectively.

 

*Advertising.*  Prepaid advertising costs are expensed thefirst time the advertising takes place. Prepaid advertising included in prepaid expenses was $293,427 and$99,296 at December 31, 2007, and 2006 respectively.  Advertising costs included in general andadministrative expenses were $4,379,402, $6,029,798 and $157,778 for the yearsended December 31, 2007, 2006, and 2005, respectively.

 

58

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is **155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

 

 

**2.  Summary ofSignificant Accounting Principles (continued)**

 

*Capitalized Interest.*  The interest cost associated with a major constructionproject is capitalized and included in the cost of the project.  When no debt is incurred specifically for a project, interest iscapitalized on amounts expended on the project using the weighted-average costof the Company’s outstanding borrowings. Capitalized interest was $-0-, $202,873 and $692,059 for the years endedDecember 31, 2007, 2006, and 2005 respectively.

 

*Income Taxes.*  The Company is a limited-liability companyand is taxed as a partnership for federal income tax purposes. Accordingly, noprovision for federal income taxes has been recorded in the accompanyingconsolidated financial statements since the taxable income or loss is includedin the income tax return of the members.

 

*Pre-opening Expenses.*  Pre-opening costs are expensed as incurred,consistent with Statement of Position 98-5, *Reporting on the Costs ofStart-up Activities*.

 

*Use of Estimates.*  The preparation of financial statements inconformity with generally accepted accounting principles in the United Statesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amountsrevenues and expenses during the reporting periods. Actual results could differfrom those estimates.

 

*Reclassifications.*  Certain reclassifications, having no effecton net loss, have been made to the previously issued consolidated financialstatements to conform to the current period’s presentation of the Company’sfinancial statements.

 

*Recently Issued AccountingPronouncements.*

 

In September 2006, theFASB issued SFAS  No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value in GAAP, andexpands disclosures about fair value measurements.  SFAS 157 does not require any new fair valuemeasurements, but provides guidance on how to measure fair value by providing afair value hierarch used to classify the source of the information.  SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007 andinterim periods within these fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FAS157-2, which defers the effective date of SFAS 157 to fiscal years beginningafter November 15, 2008, and interim periods within those fiscal years,for nonfinancial assets and nonfinancial liabilities that are recognized ordisclosed at fair value in an entity’s financial statements on a recurringbasis.  We are evaluating SFAS 157 andhave not yet determined the determined the impact the adoption will have on theconsolidated financial statements.

 

59

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**2.  Summary ofSignificant Accounting Principles (continued)**

 

In February 2007, theFASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities*.SFAS 159 permits entities to choose to measure many financial instrumentsand certain other items at fair value. The objective of the guidance is toimprove financial reporting by providing entities with the opportunity tomitigate volatility in reported earnings caused by measuring related assets and liabilitiesdifferently without having to apply complex hedge accounting provisions. SFAS159 is effective as of the beginning of the first fiscal year after November 15,2007. Early adoption is permitted as of the beginning of the fiscal year on orbefore November 15, 2007, provided the provisions of SFAS 157 are alsoapplied.  We are evaluating our optionsprovided for under this statement and their potential impact on theconsolidated financial statements when implemented.

 

In December 2007, theFASB issued SFAS 160,”Noncontrolling Interests in Consolidated FinancialStatements-An Amendment of ARB No. 51”. SFAS 160 establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary.  Specifically, this statementrequires the recognition of a noncontrolling interest as equity in theconsolidated financial statements and separate from the parent’s equity.  In addition, the amount of net income attributableto the noncontrolling interest should be included in consolidated net income onthe face of the income statement.  SFAS160 is effective for fiscal years, and interim periods within those fiscalyears, beginning on or after December 15, 2008.  Early adoption is prohibited.  We are evaluating SFAS 160 and have not yetdetermined the impact the adoption will have on the consolidated financialstatements.

 

In December 2007, FASBissued SFAS 141R, “Business Combinations”. Under SFAS 141R, an acquiring entity will be required to recognize allthe assets acquired and liabilities assumed in a transaction at theacquisition-date fair value, with limited exceptions, replacing SFAS 141’scost-allocation process.  SFAS 141R alsoincludes a substantial number of new disclosure requirements.  SFAS 141R is to be applied prospectively tobusiness combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008.  Early adoption is prohibited.  We will adopt SFAS 141R in the first quarterof 2009.  The impact on our accountingfor future business combinations once adopted will be dependent uponacquisitions that are made in the future.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**3.  Property andEquipment**

 

Property and equipmentconsists of the following at December 31, 2007 and 2006 (dollars inthousands):

 
| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Land                               |       | $        | 38,932     |     | $          | 38,932 |   |
| Buildings and improvements         |       | 72,433   |       | 72,212   |       |
| Furniture, fixtures and  equipment |       | 19,519   |       | 18,444   |       |
| Construction in progress           |       | 40       |       | 138      |       |
| Subtotal                           |       | 130,924  |       | 129,726  |       |
| Less: accumulated  depreciation    |       | (13,839  | )          | (7,590   | )          |
| Property and equipment,  net       |       | $        | 117,085    |     | $          | 122,136 |   |

 

**4.  Intangible Assets**

** **

Intangible assets consist ofthe following at December 31, 2007 and 2006 (dollars in thousands):

 
| ** **                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| Intellectual property                                |       | $        | 4,200      |     | $          | 4,200 |   |
| Slot customer list                                   |       | 260      |       | 260      |       |
| Goodwill                                             |       | 2,158    |       | 2,158    |       |
| Subtotal                                             |       | 6,618    |       | 6,618    |       |
| Less: accumulated  amortization (slot customer list) |       | (113     | )          | (61      | )          |
| Intangible assets, net                               |       | $        | 6,505      |     | $          | 6,557 |   |

 

*Intellectual property. *The Company has entered intoan assignment agreement with Florida Hooters LLC which grants the Company theright to use certain intellectual property in connection with the operations ofthe Hooters Casino Hotel.  Theintellectual property consists of (i) an exclusive license for the Hooterstrademark and logo insignia in connection with gaming, casino or combinedhotel, gaming and casino operations, (ii) a non-exclusive license to usethe Hooters restaurant concept, (iii) an exclusive license to operate andpromote restaurants, taverns, lounges and “Dan Marino’s Fine Food &Spirits” (iv) a non-exclusive, royalty-free license to use the Pete & Shorty’smark at a restaurant, bar and lounge, in each case solely for purposes of aHooters Casino Hotel located at the Hôtel San Rémo property.  These intangible assets were initially valuedat $1.1 million by management when contributed, pending completion of athird party valuation.  The intangibleassets were subsequently valued at $4.2 million by an independent third partyappraiser and are reflected as such in on the accompanying consolidated balancesheet at December 31, 2007 and 2006. Management believes the intellectual property acquired through theassignment agreements to be indefinite-lived intangibles.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**4.  IntangibleAssets (continued)**

** **

The Hooters trademark andlogo insignia are the exclusive property of HI Limited Partnership.  Florida Hooters LLC originally obtained thelicense for the trademark and logo insignia through an assignment from HootersGaming Corporation, an affiliated entity under common ownership with HootersGaming LLC.  Hooters Gaming Corporationis owned directly or indirectly by certain members of the Company or members ofthe Company’s management board.  Theunderlying license agreement was executed****betweenHI Limited Partnership and Hooters Gaming Corporation and granted toHooters Gaming Corporation an exclusive license to use the licensedintellectual property in connection with gaming, casino or combined hotel,gaming and casino operations within the State of Nevada.  Hooters Gaming Corporation retained any andall rights and obligations in the licensed intellectual property pursuant tothe license agreement for all locations within the State of Nevada other thanthe Hooters Casino Hotel.  The Companybegan the use of the licensed intellectual property in connection with licensedgaming activities when the hotel casino was reopened as the new Hooters CasinoHotel on February 3, 2006

 

The Hooters restaurantconcept is the exclusive property of Hooters of America, Inc., anunrelated party. Florida Hooters LLC originally obtained the right for use ofthe Hooters restaurant concept at the Hooters Casino Hotel through anassignment from Hooters Gaming Corporation, who in turn, was grantedthe right from Las Vegas Wings, Inc., an affiliated entity under commonownership with Lags Ventures, LLC.

 

Pursuant to the terms of theassignment agreement with Florida Hooters LLC related to the Hooters trademark,logo, and restaurant concept and Lags Ventures, LLC related to the Dan Marino’sconcept restaurants, the Company must pay fees and royalties to Hooters GamingCorporation, HI Limited Partnership, Las Vegas Wings, Inc. and LagsVentures, Inc.  Payments to HootersGaming****Corporation are accrued at threepercent of all net profits directly earned from the gaming activities at theHooters Casino Hotel.  HI LimitedPartnership will be paid an annual fee equal to $500.

 

In addition, the Company isrequired to pay HI Limited Partnership a royalty in an amount equal to twopercent of all net revenues generated in connection with licensed activitieswhich includes net revenues generated in connection with the Hooters restaurantoperation.  Las Vegas Wings, Inc is paida consent fee equal to four percent of gross sales from any Hooters brandedrestaurant and three percent of the gross cash sales of any merchandise with aHooters logo, on or near the Hooters Casino Hotel.  Lags Ventures, Inc. is paid a fee by theCompany equal to six percent of net revenues generated by the Dan Marino’s FineFood and Spirits and located in the Hooters Casino Hotel. Payment of these feesis restricted under the indenture governing the Notes.  Use of the Pete & Shorty’s markpartly owned by certain members of the Company’s management board isroyalty-free.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**4.  IntangibleAssets (continued)**

** **

Hooters Gaming Corporation,HI Limited Partnership, and Las Vegas Wings, Inc. agreed to subordinatepayment of their respective fees in favor of certain payments required underthe Company’s operating agreement. Payment is further subject to meeting certain financial ratiosassociated with the Company’s Notes.

 

*Slot customer list.*  As part of the acquisition of the realproperty and other assets of the Hôtel San Rémo (see Note 2), the Companyacquired the slot customer list valued by a third-party appraiser at$260,000.  It is being amortized overfive years using the straight line method.

 

*Goodwill.*  As part of the allocation of the purchaseprice of the Hôtel San Rémo (see Note 2), the Company recorded goodwill fromthe acquisition of Hôtel San Rémo, representing the excess of the purchaseprice over the fair market value of assets acquired.

 

**5.  Long-term Debt**

** **

**NotesOffering**

 

On March 29, 2005, theCompany issued $130.0 million aggregate principal amount of 83⁄4% Senior SecuredNotes due 2012, in a private placement (the “old notes”).  On August 5, 2005, the Companysuccessfully exchanged all of the old notes for new notes (“the Notes”).  The Notes have substantially identical terms as the oldnotes, except that the Notes have been registered under the Securities Act of1933.  Interest payments on the Notes aredue semi annually, on April 1 and October 1.  The Notes are secured by all of the Company’sand, to the extent in existence, subsidiary guarantors’  1) existing and future assets  (otherthan certain excluded existing and future assets), 2) the Company’s equityinterest in any guarantors and 3) existing renovation disbursement and interestreserve accounts as described below.

 

The Notes are redeemable at the option of theCompany on or after April 1, 2009. The indenture governing the Notescontains certain provisions which restrict or limit the Company’s ability to,among other things, incur more debt, pay dividends, redeem stock or make otherdistributions, enter into transactions with affiliates or transfer or sellassets. The Company used the proceeds from the Notes to retire existingindebtedness and (together with cash from operations and proceeds from equipmentfinancing), renovate and construct the Hooters Casino Hotel and provide forgeneral working capital needs.  Relatedto this retirement of the then existing indebtedness, the Company recognized aloss on extinguishment of debt in the amount of $2,246,526 during the yearended December 31, 2005.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**5.  Long-term Debt(continued)**

 

**Senior Secured Credit Facility**

 

The Company entered into a $15.0 million senior secured credit facility(the “Credit Facility”) concurrently with the offering of the old notes.  The Credit Facility is a four-year revolvingcredit facility of $15.0 million, maturing on March 30, 2009. The CreditFacility has no financial covenant requirements.  The Company drew $6.3 million against theCredit Facility as of December 31, 2007.

 

At the Company’s option, the interest rate will be either the agent forthe lender’s prime rate plus 2.00% per annum or LIBOR plus 3.50% perannum.  As of December 31, 2007, theCredit Facility carried an interest rate of 8.54% per annum.  All the obligations under the Credit Facilityare secured by first priority liens on and security interest in all of theCompany’s and any guarantor’s existing and future properties and assets.  The lien on the collateral that secures theNotes are contractually subordinated to the liens securing the principal amountof borrowings under the Credit Facility of up to $15.0 million (plus relatedinterest, fees, indemnities, costs and expenses).  The Credit Facility required the Company topay unused commitment fees of 0.50% per annum on any unused portion of theCredit Facility, and, if terminated prior to the third anniversary date, aprepayment premium of 1.00% of the maximum credit amount for each year orpartial year remaining from the termination date to the third anniversary date.

 

**IntercreditorAgreement**

 

Concurrently with theclosing of the old notes offering and the Credit Facility, the Company enteredinto an intercreditor agreement, which defines the rights of the lenders underthe Credit Facility in relation to the rights of the trustee and the holders ofthe Notes with respect to****the collateralsecuring the Notes. The intercreditor agreement, among other things, providesthat the liens securing the Notes and any guarantees thereof are contractuallysubordinated (other than the security interests in the renovation disbursementaccount, which will be senior, and interest reserve account, which will notsecure the Credit Facility) to the liens securing the principal amount ofindebtedness of up to $15.0 million (plus related interest, fees, indemnities,costs and expenses) under the Credit Facility. The trustee’s ability toexercise rights and remedies in respect of the collateral are also subject tothe terms of the intercreditor agreement.

 

**Equipment Purchase Agreements**

 

Duringthe year ended December 31, 2007, and 2006 the Company entered into loanagreements to purchase approximately $0.3 million and $6.2 million inequipment, respectively.  The loans,which are collateralized by the equipment purchased, have terms ranging from 12months to 5 years.  Interest ratesimputed on slot equipment purchases of $6.0 million and hotel equipmentpurchase of $0.5 million were 3.3% and 11.8%, respectively.  At December 31, 2007 and 2006, $2.3million and $4.0 million were outstanding under these agreements, respectively.

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**5.  Long-term Debt(continued)**

 

Scheduled maturities of long-term debt are asfollows (amount in thousands):

 

 

 
| **Years ending December 31,** | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------|------------|
| 2008                               |       | $          | 2,035      |   |
| 2009                               |       | 6,508      |       |
| 2010                               |       | 41         |       |
| 2011                               |       | 3          |       |
| 2012                               |       | 130,000    |       |
| Thereafter                         |       | —     |       |
| Total                              |       | $          | 138,587    |   |

 

**6. Membership Interests**

** **

The initial capitalcontributions and membership interests in the Company for Florida Hooters LLCand EW Common LLC were established in exchange for the following:

 

FloridaHooters LLC contributed $5.0 million in cash and the intellectual propertydescribed in Note 4 for a 66 2/3% membershipinterest in the Company. Further, all pre-development costs incurred by FloridaHooters LLC are credited to the Florida Hooters LLC capital account.

 

EWCommon LLC received a 33 1/3% membershipinterest with priority return for a $20.0 million deemed initial capitalcontribution as part of the Company’s acquisition of the real property andnon-gaming assets of the Hôtel San Rémo. In October 2005, the Companysecured their gaming and liquor licenses and on November 1, 2005, assumedthe operations of the hotel casino.  Uponobtaining the necessary licenses to operate the hotel casino, the Companyacquired the gaming assets from Eastern & Western consisting primarilyof slot machines and customer lists and credited the capital account of EWCommon LLC for an additional $5.0 million. A 4% priority rate of return on the membership interest held by EWCommon LLC commenced accruing upon completion of the renovation and there-opening of Hooters Casino Hotel.

 

**7.  Profit-SharingPlan**

 

The Company has a deferred compensationplan established pursuant to Section 401(k) of the Internal RevenueCode for all regular full-time employees not covered by a collective bargainingagreement who have completed at least three months of continuous service.  The Company’s****contributionsto the plan are at the

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**7.  Profit-Sharing Plan (continued)**

 

discretion of the Company’smanagement board. The Company’s plan allows for a Company match of 25% of eachdollar contributed by the employee, not to exceed 1% of a participant’s annualcompensation.  Contributions ofapproximately $77,000 and $66,000 were made by the Company in 2007 and 2006, ** **respectively. There were nosuch contributions made during 2005. Amounts expensed under the plan for administrative expenses for theyears ended December 31, 2007, 2006 and 2005 totaled $12,145, $5,046 and$2,556, respectively.

 

**8.  Lease Agreements**

 

The Company, as lessor,entered into a casino lease and hotel lease with Eastern & Westerncovering the real property and non-gaming assets of the Hôtel San Rémo acquiredby the Company.  The leases weresubsequently terminated on October 31, 2005 and the operations of thehotel and casino were assumed by the Company on November 1, 2005.

 

Prior to its termination on October 31,2005, the casino lease covered those portions of the Hôtel San Rémo containingthe showroom, gaming and liquor servicing areas, the casino floor where gamingactivities occur, surveillance areas, count rooms, the cashier’s cage and otherareas ancillary to the casino footprint.

 

Minimum monthly base-rentpayments of $125,000 were due from August 3, 2004 until the termination ofthe lease on October 31, 2005.

 

Under the provisions of thecasino lease, Eastern & Western was allowed to deposit $30,000 into a “CapitalReserve Account” each month for capital improvements to the casino such as thepurchase of gaming devices.  The casinolease also provided for Eastern & Western to fund $120,000 each month to a “Change inControl Reserve” and $55,000 to establish an “Expense Reserve” to be used forthe payment of legal, accounting, and professional fees and other generalbusiness expenses including licensing renewal costs.  To the extent that these reserves were notused, they were paid to Eastern & Western at the termination of thelease.  On December 12, 2005, apayment of $1,127,628 was made to Eastern & Western by the Company forthe balance of the reserves at October 31, 2005, which was treated by theCompany as a purchase price adjustment. Rental income earned under the casino lease totaled $1,250,000 for theyear ended December 31, 2005.

 

**Hotel Lease**

 

The hotel lease betweenEastern & Western and the Company covered those portions of the HôtelSan Rémo containing all non-casino areas, including the hotel.  The hotel lease was terminated on October 31,2005.   Minimum lease payments due underthe hotel lease consisted of a minimum rent and a percentage rent.  The minimum rent was $250,000 per month.   The percentage rent was equal to 100% of all

 

66

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

 

 

**8.  LeaseAgreements (continued)**

 

revenuesreceived from the operations of the hotel, less actual operational expenses(including minimum rent).  The minimumrent was paid on a monthly basis on the first of each month and the percentagerent was paid in arrears on the first of each month.  Percentage rental income earned for the yearended December 31, 2005 was $1,689,324. The total rental income earnedunder the hotel lease was $4,189,324 for the year ended December 31, 2005.

 

**9.  Related Party Transactions**

 

**RoyaltiesExpense**

 

Pursuant to agreementsrelated to the use of certain trademarks (see Note 4), the Company must payfees and royalties to related parties.  A fee equal to 3% of all netprofits earned from gaming activities is payable to Hooters Gaming Corporation,a consent fee equal to 6% of net revenues generated by the Dan Marino’sRestaurant is payable to Lags Ventures, Inc. and a fee of 4% of cash salesfrom Hooters branded restaurant, and 3% of the gross sales with any merchandisewith a Hooters logo, is payable to Las Vegas Wings, Inc.  The totalfees accrued at December 31, 2007 for Hooters Gaming Corporation, LagsVenture, Inc. and Las Vegas Wings, Inc. were $1.5 million, $0.5million, and $0.9 million, respectively. As the Hooters Casino Hotel opening did not occur until February 2006,no fees were accrued by the Company for these royalties during the year ended December 31,2005.  The payment of these royalty feesis restricted under the indenture governing the Notes.

 

**HawkeyeConstruction and Millwork, Inc.**

 

Hawkeye Construction andMillwork, Inc. are co-owned by David Lageschulte, a member of the Company’smanagement board and an indirect beneficial owner of 33.27% of the Company’smembership interests.  HawkeyeConstruction and Millwork, Inc. managed the construction and renovation ofthe Hooters Casino Hotel and received as compensation for such services 2% ofthe construction and furniture, fixtures and equipment costs, not to exceed atotal of $600,000.  The Company’spayments to Hawkeye Construction and Millwork, Inc. in relation to theconstruction and renovation management agreement totaled $0.1 million and $0.5million for the years ended December 31, 2006 and 2005, respectively.

 

**ProvidentAdvertising & Marketing, Inc.**

 

The majority shareholder ofProvident Advertising & Marketing, Inc. (“Provident”) is EdwardC. Droste, a member of the Company’s management board and an indirectbeneficial owner of 3.96% of the Company’s membership interests.  Provident was engaged by the Company toprovide services related to the planning and development of an initialadvertising and marketing plan and for the continued development andimplementation of a strategic marketing plan for the Hooters Casino Hotel.  They continue to be involved as the Company’sadvertising firm.  In addition, theCompany purchases Hooters logo items from Provident for uniforms and for resalein the Company’s gift shops.  The feespaid to

 

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**155 East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

 

**9.Related Party Transactions (Continued)**

 

Providentduring the years ended December 31, 2007, 2006, and 2005 totaled $1.8million, $3.0 million, and $0.3 million, respectively.

 

TheNotes issued by the Company require the Company to engage an independentvaluation firm to determine that the related party transactions are valued atarm’s-length prices if the total expenditures to Provident aggregate $2.5million. In 2006, a nationally-recognized valuation firm issued a favorable opinion that therelated party transactions with Provident had been conducted in a mannerconsistent with the arm’s-length standard.

** **

**10.  Commitments and Contingencies**

** **

***Litigation***

 

Fromtime to time, the Company is a party to various claims arising in the normalcourse of business.  Management believes,however, that there are no proceedings pending or threatened against theCompany which, if determined adversely, would have a material adverse effect onthe Company’s financial condition, results of operations or liquidity.

** **

***ContractualCommitments***

*** ***

The Company has entered intooperational contracts totaling $6.13 million at December 31, 2007.

 

**Hooters of America Royalty Payments**

 

Beginning on February 3,2006, the Company was required to pay the owner of the Hooters trademark,Hooters of America, a royalty fee equal to 2% of all net revenues of the hoteland casino (excluding the Dan Marino’s Restaurant and 13 Martini Bar) and 1% ofrevenues from the Pete and Shorty’s Tavern less miscellaneous expenses.  The total fees paid to Hooters of Americawere approximately $1.2 million and $1.3 million for the years ended December 31,2007 and 2006, respectively.  These feesare included in general and administrative expenses on the accompanying condensedconsolidated statements of operations.

 

**Preferred Return**

 

The Company’s membershipinterests include an EW Common LLC preferred account which accumulates apreferred return rate of 4% per annum on the $25.0 million accountbalance.  Such preferred return beganaccumulating on March 1, 2006, and accumulates whether or not there areprofits or funds available for the payment of the preferred return.  Under the Notes indenture, the preferredreturn to EW Common LLC is payable only if the Company’s coverage ratio ofEBITDA to fixed charges (as defined in the indenture and after giving effect tothe payment of the preferred return) is 1.5 to 1 for the fiscal year asmeasured after the close of the fiscal year. As of December 31, 2007, $1.8 million relating to the preferredaccount has accumulated, but has not been paid. As the Company’s coverage ratio of

 

68

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**East Tropicana, LLC (A Nevada Limited-Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

**10.  Commitments and Contingencies(continued)**

** **

EBITDAto fixed charges did not meet this defined ratio, no liability has beenrecorded in the accompanying consolidated financial statements at December 31,2007.

 

**11.  AssetPurchase Agreement**

** **

On April 30, 2007, the Company entered into adefinitive Asset Purchase Agreement (the “Agreement”) with Hedwigs Las VegasTop Tier, LLC (the “Buyer”), and on May 3, 2007, the Company entered intoa definitive Casino Operations Lease (the “Lease”) with the Buyer. On May 7,2007, the Company entered into a First Amendment to Asset Purchase Agreementwith the Buyer. Additionally, on August 8, 2007, the Company entered intoa Second Amendment to Asset Purchase Agreement with the Buyer.

** **

Underthe terms of the Agreement, as amended, the Buyer has offered to purchaseessentially all of the assets of the Company for a purchase price of $95.0million in cash, the payment of certain accrued royalties, and the assumptionof certain outstanding liabilities of the Company. The Buyer will also beresponsible for the Company’s $130.0 million in principal amount of 8.75%Senior Secured Notes due 2012.  Inconnection with the Agreement, as amended, the Company has received threenonrefundable deposit payments from the Buyer, including (1) a $1.0million payment on May 7, 2007 and (2) a $0.5 million payment on August 14,2007 and a $1.5 million deposit payment on November 26, 2007.

** **

Alldeposits will be applied against the purchase price if the transaction closes.The Agreement, as amended, provides for a closing date on or before December 31,2007, which the Buyer may extend under certain conditions by paying $0.5million for each month the Agreement is extended. Four extension fees of $0.5million each were received by the Company on December 31, 2007, January 31,2008, February 29, 2008 and March 31, 2008.  The extension fees paid are not refundableand will not be credited toward the purchase price. Notwithstanding the Buyer’sright to extend the closing date, the Company may terminate the Agreement ifthe closing has not occurred on or before June 30, 2008.

** **

Asprovided in the Agreement, the closing will be subject to the completion of duediligence, financing, and licensing, among other customary conditions. Therecan be no assurance that (i) the conditions to closing under Agreementwill ever be satisfied, or (ii) any transaction contemplated under theAgreement will be consummated, or (iii) if a transaction is consummated,it will be on the same or similar terms as currently provided under theAgreement.

** **

**69**

----

### ** **

### **Report ofIndependent Registered Public Accounting Firm**

### ** **

**To S.I.Enterprises, Inc:**

 

Wehave audited the accompanying combined balance sheet of Hôtel San Rémo Casino and Resort, a division of S.I. Enterprises, Inc.,a Nevada corporation (the “Division”) as of October 31, 2005, andthe related combined statements of operations, division equity (deficit), andcash flows for the ten months ended October 31, 2005.  These financial statements are theresponsibility of the Division’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Division’s internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Division’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

Inour opinion, the combined financial statements referred to above presentfairly, in all material respects, the combined financial position of Hôtel San Rémo Casino and Resort at October 31,2005, and the results of its combined operations and its combined cash flowsfor the ten months ended October 31, 2005 in conformity with U.S. generally accepted accounting principles.

 

/s/ Ernst & Young LLP

 

LasVegas, Nevada

February 9,2006

 

70

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**HôtelSan Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **COMBINEDBALANCE SHEET**

### ** **

| ** **                                                                                                                                             | ** ** | **October 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                             | ** ** | **2005**             | ** ** |
| **Assets**                                                                                                                                             | ** ** | ** **           | ** ** |
| Current assets:                                                                                                                                        |       |                 |       |
| Cash and cash equivalents                                                                                                                              |       | $                    | 2,903,020  |   |
| Accounts receivable, net of allowance for doubtful accounts of  $137,507 in 2005 and including related party interest receivables of $395,324  in 2005 |       | 1,392,338            |       |
| Due from 155 East Tropicana, LLC                                                                                                                       |       | 644,934              |       |
| Due from Nevada Gaming Control Board                                                                                                                   |       | 116,893              |       |
| Inventories                                                                                                                                            |       | 200,208              |       |
| Prepaid expenses                                                                                                                                       |       | 175,750              |       |
| Deferred tax assets                                                                                                                                    |       | 776,614              |       |
| Total current assets                                                                                                                                   |       | 6,209,757            |       |
| Property and equipment:                                                                                                                                |       |                 |       |
| Furniture, fixtures and equipment                                                                                                                      |       | 7,177,825            |       |
| Less accumulated  depreciation                                                                                                                         |       | (6,040,293           | )          |
| Net property and equipment                                                                                                                             |       | 1,137,532            |       |
| Deferred tax assets                                                                                                                                    |       | 825,550              |       |
| Other assets                                                                                                                                           |       | 42,088               |       |
| Total assets                                                                                                                                           |       | $                    | 8,214,927  |   |
|                                                                                                                                                   |       |                 |       |
| **Liabilities and Division Equity**                                                                                                                    | ** ** | ** **           | ** ** |
| Current liabilities:                                                                                                                                   |       |                 |       |
| Accounts payable                                                                                                                                       |       | $                    | 1,720,996  |   |
| Accrued expenses                                                                                                                                       |       | 1,416,765            |       |
| Income taxes payable to S.I. Enterprises, Inc.                                                                                                    |       | 1,216,743            |       |
| Total current liabilities                                                                                                                              |       | 4,354,504            |       |
|                                                                                                                                                   |       |                 |       |
| Commitments and  contingencies                                                                                                                         |       |                 |       |
|                                                                                                                                                   |       |                 |       |
| Division equity                                                                                                                                        |       | 3,860,423            |       |
| Total liabilities and  division equity                                                                                                                 |       | $                    | 8,214,927  |   |

 

*The accompanying notes are an integral part of these combined financial**statements.*

 

71

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**HôtelSan Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **COMBINEDSTATEMENTS OF OPERATIONS**

### ** **

| ** **                    | ** ** | **Ten Months Ended** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **October 31,** | ** ** |
| ** **                    | ** ** | **2005**             | ** ** |
| ** **                    | ** ** | ** **           | ** ** |
| Operating revenues:           |       |                 |       |
| Casino                        |       | $                    | 8,947,267  |   |
| Food and beverage             |       | 5,556,404            |       |
| Hotel and other               |       | 12,217,344           |       |
|                          |       | 26,721,015           |       |
| Less promotional  allowances  |       | (1,769,932           | )          |
| Net operating revenues        |       | 24,951,083           |       |
| Operating expenses:           |       |                 |       |
| Casino                        |       | 5,274,642            |       |
| Food and beverage             |       | 4,976,696            |       |
| Hotel and other               |       | 3,628,525            |       |
| General and administrative    |       | 6,678,543            |       |
| Depreciation expense          |       | 334,790              |       |
| Related party lease expense   |       | 5,439,324            |       |
| Total operating expenses      |       | 26,332,520           |       |
| Operating loss                |       | (1,381,437           | )          |
| Other income (expense):       |       |                 |       |
| Related party interest income |       | 346,262              |       |
| Interest expense              |       | (7,398               | )          |
| Other income (expense),  net  |       | 338,864              |       |
| Loss before income taxes      |       | (1,042,573           | )          |
| Benefit for income taxes      |       | (396,633             | )          |
| Net loss                      |       | $                    | (645,940   | ) |

 

*Theaccompanying notes are an integral part of these combined financial**statements.*

 

72

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**HôtelSan Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **COMBINEDSTATEMENTS OF DIVISION EQUITY (DEFICIT)**

 
| ** **                    | ** ** | **Ten Months Ended** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **October 31,** | ** ** |
| ** **                    | ** ** | **2005**             | ** ** |
| Balance, beginning of  period |       | $                    | 7,472,515  |   |
| Advances to affiliates, net   |       | (2,966,152           | )          |
| Net loss                      |       | (645,940             | )          |
| Balance, end of period        |       | $                    | 3,860,423  |   |

 

*The accompanying notes are anintegral part of these combined financial statements.*

 

73

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**HôtelSan Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **COMBINEDSTATEMENTS OF CASH FLOWS**

### ** **

| ** **                                                                       | ** ** | **Ten Months Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                       | ** ** | **October 31,** | ** ** |
| ** **                                                                       | ** ** | **2005**             | ** ** |
| **Cash Flow From Operating  Activities**                                         |       |                 |       |
| Net loss                                                                         |       | $                    | (645,940   | ) |
| Adjustments to reconcile net loss to net cash provided by operating  activities: |       |                 |       |
| Depreciation                                                                     |       | 334,790              |       |
| Deferred income taxes                                                            |       | 812,954              |       |
| Change in operating assets and liabilities:                                      |       |                 |       |
| Accounts receivable                                                              |       | (221,490             | )          |
| Provision for doubtful accounts                                                  |       | (9,338               | )          |
|                                                                             |       |                 |       |
| Due from Nevada Gaming Control Board                                             |       | (116,893             | )          |
| Inventories                                                                      |       | 74,749               |       |
| Prepaid expenses                                                                 |       | 505,948              |       |
| Accounts payable                                                                 |       | 110,836              |       |
| Accrued expenses                                                                 |       | (410,616             | )          |
|                                                                             |       |                 |       |
| Income taxes payable to S.I. Enterprises, Inc.                              |       | 65,980               |       |
| Net cash provided by  operating activities                                       |       | 500,980              |       |
|                                                                             |       |                 |       |
| **Cash Flow From Investing  Activities**                                         |       |                 |       |
| Capital expenditures                                                             |       | (21,781              | )          |
| Net change in other assets                                                       |       | 39,459               |       |
| Net cash provided by  investing activities                                       |       | 17,678               |       |
|                                                                             |       |                 |       |
| **Cash Flow From Financing  Activities**                                         |       |                 |       |
| ** **                                                                       |       |                 |       |
| Net change in due from 155  East Tropicana, LLC                                  |       | 1,115,500            |       |
| Principal payments on  long-term debt                                            |       | (235,905             | )          |
| Advances to affiliates,  net                                                     |       | (2,966,152           | )          |
| Net cash used in financing  activities                                           |       | (2,086,557           | )          |
|                                                                             |       |                 |       |
| Decrease in cash and cash  equivalents                                           |       | (1,567,899           | )          |
|                                                                             |       |                 |       |
| Cash and cash equivalents,  beginning of period                                  |       | 4,470,919            |       |
| Cash and cash equivalents,  end of period                                        |       | $                    | 2,903,020  |   |
|                                                                             |       |                 |       |
| **Supplemental  disclosure of cash flow information:**                           |       |                 |       |
| Cash paid during period  for interest                                            |       | $                    | 7,398      |   |

 

*The accompanying notes are an integral part of these combined financial**statements.*

 

74

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**HôtelSan Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS**

### ** **

**October 31, 2005**

** **

**1.  Organization and Basis of Presentation**

** **

The accompanying combined financial statements present the operationsof Hôtel San Rémo Casino and Resort (“Hôtel San Rémo”), a division of S.I.Enterprises, Inc. (the “Parent Company”), a Nevada Corporation, which islocated in Las Vegas, Nevada.  Hôtel SanRémo commenced gaming operations on February 16, 1990.  The accompanying combined financialstatements represent the assets, liabilities and operations of the hotel andgaming facilities and include certain accounts of Eastern & WesternHotel Corporation (“Eastern & Western”) and I&P Corporation,Colorado (“I&P”), both Nevada corporations. Theaccompanying financial statements have been prepared as of the last day ofoperations, October 31, 2005, of Hôtel San Rémo by Eastern &Western as 155 East Tropicana, LLC assumed the operations of the hotel andcasino as of November 1, 2005 upon which it secured its gaming and liquorlicenses. Through October 31, 2005, Eastern & Western heldthe gaming license in Nevada and owned all gaming assets used by Hôtel SanRémo.  I&P owned the real propertyand non-gaming assets of Hôtel San Rémo until August 3, 2004, at whichtime they were acquired by 155 East Tropicana, LLC (see Note 2) and then leasedback to Hôtel San Rémo pursuant to the casino lease and hotel leasearrangements (see Note 7).  Members ofthe Izumi family are 100% owners of the Parent Company, which owns 100% ofEastern & Western and owns 100% of I&P.  The principal business of Eastern &Western prior to the merger of I&P into Eastern & Western, was theowner and operator of the hotel.

 

On July 28, 2004, I&P was merged with and into Eastern &Western, with Eastern & Western assuming all assets and liabilities ofI&P including the real property and non-gaming assets of Hôtel San Rémo.

 

Certain reclassifications, having no effect on net loss, have been madeto the previously issued combined financial statements to conform to thecurrent period’s presentation of the Hôtel San Rémo’s financial statements.  All significant intercompany accounts andtransactions have been eliminated in the combined financial statements.

 

**2.  Acquisition by 155 East Tropicana, LLC**

** **

In August 2004, 155 East Tropicana, LLC (“155”) agreed to theacquisition of the real property and other assets of Hôtel San Rémo forapproximately $72.5 million including transaction costs and expenses.  155 is a joint venture between FloridaHooters LLC and EW Common LLC.  EW CommonLLC was formed to hold Eastern & Western’s membership interest in155.  EW Common LLC is owned 90% byEastern & Western and 10% by Michael J. Hessling, the executive vicepresident and chief operating officer of Hôtel San Rémo.  Initially, 155 acquired $67.5 million of thereal property and non-gaming assets and agreed that the remaining $5.0 millionin gaming assets would be transferred to 155 upon obtaining the gaming andliquor licenses necessary to take over operations of the hotel and casino.

 

75

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**2.  Acquisition by 155 East Tropicana, LLC(continued)**

 

InOctober 2005, 155 secured the necessary gaming and liquor licenses and on November 1,2005, assumed the operations of the hotel and casino.  On November 1, 2005, the remaining HôtelSan Rémo gaming assets were also transferred to 155 in exchange for anadditional $5.0 million interest in 155 with a priority return.  The casino and hotel leases were terminatedon October 31, 2005.   Immediatelyprior to the acquisition in 2004, the real property and non-gaming assets ofHôtel San Rémo with a net book value of $25,956,004 and long-term debt of$43,745,708 were transferred to EW Common LLC.  Because EW Common LLC and Hôtel San Rémoare entities under common control, these transfers were reflected as divisionequity transactions.

 

The acquisition was funded by 155 through a term loan totaling$48.5 million which was used to extinguish the Hôtel San Rémo’s existingindebtedness of $43.7 million, a commitment to pay the former owner ofHôtel San Rémo $1.3 million and the issuance to EW Common LLC of a 331/3% membership interest withpriority return valued at $20.0 million.

 

On March 29, 2005, 155successfully completed the issuance of $130 million in principal amount 83⁄4%,Senior Secured Notes due 2012 (the “old notes”).  On August 5, 2005, 155 successfullyexchanged all of the old notes for new notes (the “Notes”).  Proceeds from the Notes offering were usedprincipally to renovate the Hôtel San Rémo into the Hooters Casino Hotel.

 

**3.  Summary of Significant Accounting Policies**

 

*Use of Estimates. *The preparationof financial statements in conformity with accounting principles generally acceptedin the United States requires management to make estimates and assumptions thataffect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the combined financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

*Cash and Cash Equivalents.*  Cash and cash equivalents include all cashbalances and highly liquid investments with purchased maturities of threemonths or less at the date of purchase.

 

*Allowances for Doubtful Accounts.*  The Hôtel San Rémo reserves an estimatedamount for receivables that may not be collected.  Historical collections rates and customerrelationships are considered in determining specific reserves.  Bad debt expense was $45,000 and $48,000 forthe ten months ended October 31, 2005 and for the year ended December 31,2004, respectively.

 

*Inventories.*  Inventoriesare stated at the lower of cost (using a first-in, first-out method) or marketvalue.

 

76

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**3.  Summary of Significant Accounting Policies(continued)**

 

*Property and Equipment.*  Property and equipment are recorded atcost.  Depreciation is calculated usingthe straight-line method over the following estimated useful lives:

 
| Buildings  and improvements         | 15 to 31.5 years |
|-------------------------------------|------------------|
| Furniture,  fixtures, and equipment | 3 to 7 years     |

 

Normal repairs and maintenance are charged to expense whenincurred.  Expenditures that extend theuseful lives of assets are capitalized.

 

*Long-Lived Assets.*  In accordance with the provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets,” Hôtel San Rémo evaluatesthe potential impairment of long-lived assets when events or changes incircumstances indicate that the carrying amount of a long-lived asset may notbe recoverable.  If it is determined thatthe carrying value of long-lived assets may not be recoverable based upon therelevant facts and circumstances, Hôtel San Rémo estimates the futureundiscounted cash flows expected to result from the use of the asset and itseventual disposition.  If the sum of theexpected undiscounted future cash flows is less than the carrying value of theasset, Hôtel San Rémo will recognize an impairment loss for the differencebetween the carrying value of the asset and its fair value.

 

*Income Taxes.*  Hôtel San Rémo****accounts forincome taxes under SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”),whereby deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementscarrying amounts of existing assets and liabilities and their respective taxbases.  Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled.  Under SFAS No. 109,the effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that included the enactment date.

 

*Jackpots and Prizes.*  Hôtel San Rémo has progressive slotmachines.  As coins are played, theamount available to win increases and will be paid out when the jackpot isawarded.  In accordance with industrypractice, Hôtel San Rémo records the liability and expense related to suchprogressives as incurred.

 

*Casino Revenues and Promotional Allowances.*  In accordance with industry practice, HôtelSan Rémo recognizes as casino revenue the net win from gaming activities, whichis the difference between

 

77

----

 

**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**3.  Summary of Significant Accounting Policies(continued)**

 

gaming wins and losses.The retail value of rooms, food and beverage furnished to customers withoutcharge is included in gross revenue and then deducted as promotionalallowances.

 

The estimated departmental costs of providing such promotionalallowances are included in casino operating expenses and consist of thefollowing:

 
| ** **        | ** ** | **Ten months ended**       | ** ** |
|-------------------|------------|----------------------------|------------|
| ** **        | ** ** | **October 31,  2005** | ** ** |
| Food and beverage |       | $                          | 558,702    |   |
| Hotel and other   |       | 75,641                     |       |
|              |       | $                          | 634,343    |   |

 

*Player Club Points.*  Hôtel San Rémo’s Money Club slot club programallows customers to earn certain complimentary products and/or cash, based onthe volume of the customers’ gaming activity. Hôtel San Rémo has recorded a liability for the estimated cost of theproducts and/or cash earned by customers. Hôtel San Rémo’s slot club program allows customers to redeem points earnedfrom their gaming activity for complimentary food, beverage, rooms,entertainment and merchandise.  At thetime redeemed, the retail values of complimentaries under the program arerecorded as revenue with a corresponding offsetting amount included inpromotional allowances.  The costsassociated with complimentary food, beverage, rooms, entertainment andmerchandise redeemed under the program is recorded in casino operatingexpenses.

 

In February 2001, the Emerging Issues Task Force (“EITF”) of the FinancialAccounting Standards Board (“FASB”) reached a consensus in EITF Issue No. 00-22,“Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based SalesIncentive Offers, and Offers for Free Products to Be Delivered in the Future.”  EITF Issue No. 00-22 requires that theredemption of points for cash be recognized as a reduction of revenue.  In accordance with EITF Issue No. 00-22,Hôtel San Rémo has recorded the cost of points earned and redeemed forcomplimentary services/cash rebates as promotional allowances.  Such amounts totaled $89,222 for the tenmonths ended October 31, 2005.

 

*Advertising.*  Prepaidadvertising costs are expensed the first time the advertising takes place.  Prepaid advertising included in prepaidexpenses was $20,270 at October 31, 2005. Advertising costs included in general and administrative expenses were$473,834 for the ten months ended October 31, 2005.

 

*Fair Value of Financial Instruments.*  The carrying value of Hôtel San Rémo’s cashand cash equivalents, receivables, accounts payable, accrued expenses and debtapproximates fair value primarily because of the short maturities of theseinstruments.

 

78

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**3.  Summary of Significant Accounting Policies(continued)**

 

*Reclassifications. *Certain amountsin the prior years’ financial statements have been reclassified to conform tothe current year’s presentation.

 

**4.  Due from Affiliates**

 

At October 31, 2005 Hôtel San Rémo had unsecured demand notesreceivable from various related parties in the aggregate amount of $11,449,000.These notes bear interest at variable rates, ranging from 3.4% to 5.0% at October 31,2005.  Hôtel San Rémo has recordedinterest income related to these notes of $346,262 for the ten months ended October 31,2005.  The notes receivable at October 31,2005 are included in Hôtel San Rémo’s division equity.

 

Included in accounts receivable at October 31, 2005 are relatedparty interest receivables and other receivables of $395,324.

 

In addition, at October 31, 2005, Hôtel San Rémo had a receivablein the amount of $644,934 from 155.

 

Hôtel San Rémo has a deferred compensation plan established pursuant toSection 401(k) of the Internal Revenue Code for all regular full-timeemployees not covered by a collective bargaining agreement who have completedat least three months of continuous service. Hôtel San Rémo’s contributions to the plan are at the discretion of theParent Company’s board of directors and cannot exceed $1,500 or 6% of theparticipant’s compensation.  There wereno contributions made during 2005. Amounts expensed under the plan for administrative expenses for the tenmonths ended October 31, 2005 totaled $329.

 

**5.  Profit-Sharing Plan**

 

Monthly base rent payments of $125,000 were due from August 3,2004 until termination at October 31, 2005. Upon certain defined eventsand to the extent that Hôtel San Rémo had available cash flow from casinooperations, Eastern & Western was to set aside reserves of $120,000and $55,000 each month to cover change in control payments and licensingexpenses, respectively.  To the extentthat these reserves were not used, they were paid to Eastern & Westernat the termination of the lease.  On December 21,2005, a payment of $1,127,628 was made to Eastern & Western by 155 forthe balance of the reserves existing at October 31, 2005.

 

79

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**6.  Lease Agreements**

** **

In connection with the acquisition of Hôtel San Rémo’s real propertyand non-gaming assets by 155, Eastern & Western, as lessee, and 155entered into lease agreements to lease back the casino and hotel propertypreviously owned by Hôtel San Rémo.  Uponthe receipt of gaming and liquor licensing by 155, these leases were terminatedon October 31, 2005 and the operations of the hotel and casino wereassumed by 155.   The terms of theselease agreements are described below.

 

*Casino Lease.*  Thecasino lease between Eastern & Western and 155 covered those portionsof the Hôtel San Rémo containing the showroom, gaming and liquor servicingareas, the casino floor where gaming activities occur, surveillance areas,count rooms, cashier cages and other areas ancillary to the casino footprint.

 

*Hotel Lease.*  The hotellease between Eastern & Western and 155 covered those portions of theHôtel San Rémo containing all non-casino areas including the hotel.

 

Minimumlease payments due under the hotel lease consist of a minimum rent and apercentage rent. The minimum rent was $250,000 per month. The percentage rentwas equal to 100% of all revenues received from the operation of the hotel,less actual operational expenses (including minimum rent) and working capitalreserves which were determined and agreed upon monthly by 155 and Eastern &Western.  No capital reserves were agreedto for the period from August 3, 2004 through October 31, 2005. Whilethe minimum rent was paid on a monthly basis, the percentage rent was paid inarrears to 155 on the first day of each calendar quarter.  Rent for any partial month was prorated basedon a thirty-day month.  Percentage rentalexpense incurred for the ten months ended October 31, 2005 totaled$1,689,324.

 

Total rental expense under the casino and hotel leases was $5,439,324during the ten months ended October 31, 2005.

 

80

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**7.  Income Taxes**

 

Hôtel San Rémo is a division included in the consolidated federalincome tax return of the Parent Company. Accordingly, the current federal tax liability or benefit resulting fromthe taxable income or loss generated by Hôtel San Rémo is recognized by theParent Company in its consolidated federal income tax return.

 

The components of the Hôtel San Rémo’s income tax provision (benefit)from continuing operations for the ten months ended October 31, 2005 wereas follows (amounts in thousands):

 

| ** **           | ** ** | **Ten months ended** | ** ** |
|----------------------|------------|----------------------|------------|
| ** **           | ** ** | **October 31,** | ** ** |
| ** **           | ** ** | **2005**             | ** ** |
| ** **           | ** ** | **(in thousands)**   | ** ** |
| Current tax expense  |       | $                    | 66         |   |
| Deferred tax benefit |       | (463                 | )          |
| Total                |       | $                    | (397       | ) |

 

A reconciliation of Hôtel San Rémo’s income tax provision (benefit) ascompared to the tax provision calculated by applying the federal statutory rate(35%) to loss before income taxes for the ten months ended October 31, 2005,is as follows (amounts in thousands):

 

| ** **                                                  | ** ** | **Ten months ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                  | ** ** | **October 31,** | ** ** |
| ** **                                                  | ** ** | **2005**             | ** ** |
|                                                        | ** ** | **(in  thousands)**  | ** ** |
| Computed income tax  expense at statutory rate              |       | $                    | (365       | ) |
| General business credits net of disallowed employment taxes |       | (32                  | )          |
| Total                                                       |       | $                    | (397       | ) |

 

Theincome tax effects of temporary differences between financial and income taxreporting that give rise to deferred tax assets and liabilities at October 31,2005 are as follows:

 

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**7.  Income Taxes (continued)**

 
| ** **                            | ** ** | **October 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2005**             | ** ** | **2004**              | ** ** |
| ** **                            | ** ** | **(in thousands)**   | ** ** | ** **            | ** ** |
| **Deferred tax assets**               | ** ** | ** **           | ** ** | ** **            | ** ** |
| Accrued expenses                      |       | $                    | 524        |                  | $          | 265 |   |
| Bad debt reserve                      |       | 48                   |       | 51                    |       |
| Intangibles                           |       | 346                  |       | 204                   |       |
| Capitalized interest                  |       | 13                   |       | 13                    |       |
| AMT and general business  credits     |       | 694                  |       | 617                   |       |
| Total deferred tax assets             |       | 1,625                |       | 1,150                 |       |
|                                  |       |                 |       |                  |       |
| **Deferred tax liabilities**          | ** ** | ** **           | ** ** | ** **            | ** ** |
| Fixed assets, primarily  depreciation |       | (23                  | )          | —                |       |
| Total deferred tax  liabilities       |       | (23                  | )          | —                |       |
|                                  |       |                 |       |                  |       |
| Net deferred tax asset                |       | $                    | 1,602      |                  |       | $ | 1,150 |   |
|                                       |            |                      |            |                       |            |  |  |  |

 

AtOctober 31, 2005, Hôtel San Rémo had $476,831 of alternative minimum tax (“AMT”)credits and $217,109 of general business credits available to offset futurefederal tax.  The AMT credit does nothave an expiration date.  The generalbusiness credits will start to expire in 2024.

 

Thecurrent payable for income taxes at October 31, 2005 is recorded in incometaxes payable to the Parent Company in the accompanying combined balancesheets.

 

OnFebruary 28, 2005, the Parent Company converted from a Nevada corporationto a Nevada limited-liability company. Effective on the date of conversion, the Parent Company elected toretain its “C” corporation status for federal income tax purposes.

 

**8.  Commitments and Contingencies**

 

*Non-Compete.*  Under theterms of the casino lease and the hotel lease, Eastern & Western hasagreed that Hôtel San Rémo will not operate a similar casino or hotel businessat any other location in Clark County, Nevada, including any location within ahotel and/or casino property.

 

*Litigation.*  Hôtel SanRémo is party to various litigation arising in the normal course ofbusiness.  Management is of the opinionthat the ultimate resolution of these matters will not have a material adverseeffect on the financial position, cash flows, or the results of operations ofHôtel San Rémo.

 

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**Hôtel San Rémo Casino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINEDFINANCIAL STATEMENTS (CONTINUED)**

### ** **

**9.  Subsequent Events**

 

On December 12, 2005, Hôtel San Rémo received a payment of$2,158,131 (inclusive of the payment of $1,127,628 discussed in Note 6) from155 in additional consideration associated with the sale of the Hôtel San Rémopursuant to an Amended and Restated Joint Venture Agreement and the Amended andRestated Casino Lease Agreement with 155.

 

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## ** **

 

 

 

## ** **

| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE.** |
|-------------|--------------------------------------------------------------------------------------------|

## ** **

Not applicable.

 
| **ITEM 9(A).** | **CONTROLS AND PROCEDURES.** | ** ** |
|----------------|------------------------------|------------|

## ** **

### **Evaluation of Disclosure Controls**

### ** **

We evaluated the effectiveness of ourdisclosure controls and procedures as of the end of the 2007 fiscal year.  This evaluation was done with theparticipation of our management, including our Chief Executive Officer,President, Chief Operating Officer, and Chief Financial Officer.

 

Disclosure controls and procedures are controlsand other procedures that are designed to ensure that information required tobe disclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934 are recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’s rules andforms.  Disclosure controls andprocedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by us in the reports that wefile under the Securities Exchange Act of 1934 is accumulated and communicatedto our managers, as appropriate to allow timely decisions regarding requireddisclosure.

 

### **Limitations on the Effectiveness of Controls**

### ** **

Our management does not expect that our disclosurecontrols and procedures or our internal controls over financial reporting willprevent all error and all fraud.  Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, but not absolute, assurance that the objectives of a control systemare met.  Further, any control systemreflects limitations on resources, and the benefits of a control system must beconsidered relative to its costs.  Becauseof the inherent limitations in all control systems, no evaluation of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within us have been detected. These inherent limitations include the realities that judgments indecision-making can be faulty and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or more people, or by managementoverride of a control.  The design of acontrol system is also based upon certain assumptions about the likelihood offuture events, there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions; over time,controls may become inadequate because of changes in conditions, or the degreeof compliance with the policies or procedures may deteriorate. Because of theinherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and may not be detected.

 

### **Conclusions**

### ** **

Based on this evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have evaluated our disclosure controls andprocedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and15d- 15(e)) as of December 31, 2007, and have concluded that these areeffective to timely alert them to material information relating to us requiredto be included in the reports that we file or submit under the SecuritiesExchange Act of 1934.

 

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**Management’s Report onInternal Control Over Financial Reporting**

 

                The management of the Company is responsible forestablishing and maintaining adequate internal control over financialreporting. The Company’s internal control system was designed to providereasonable assurance to the Company’s management and board of directorsregarding the preparation and fair presentation of published financialstatements.

 

                Management assessed the effectiveness of the Company’sinternal control over financial reporting (as defined in the Securities ExchangeAct of 1934 Rules 13a-15(f) and 15d-15(f)) as of December 31,2007. In making this assessment, it used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework. Based on our assessment we believethat, as of December 31, 2007, the Company’s internal control overfinancial reporting is effective based on those criteria.

 

                This annual report does not include an attestationreport of the company’s registered public accounting firm regarding internalcontrol over financial reporting. Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit thecompany to provide only management’s report in this annual report.

 

### **Changes in Internal Controls**

### ** **

There were no changes in our internalcontrols over financial reporting that occurred during our last fiscal quarter,*i.e.*, the quarter ended December 31,2007, that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 
| **ITEM 9B.** | **OTHER INFORMATION.** |
|--------------|------------------------|

## ** **

Not applicable.

 

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# **PART III**

# ** **

| **ITEM 10.** | **DIRECTORS, EXECUTIVE OFFICERS  AND CORPORATE GOVERNANCE.** | ** ** |
|--------------|--------------------------------------------------------------|------------|

## ** **

The following information summarizes thebusiness experience during at least the past five years of each of ourexecutive officers and the members of our management board.

 
| **Name**                  | ** ** | **Age** | ** ** | **Position(s)**                 | ** ** |
|---------------------------|------------|---------|------------|---------------------------------|------------|
| Neil G. Kiefer            |       | 56      |       | Chief Executive Officer         |       |
| Michael J. Hessling       |       | 55      |       | President and Management  Board |       |
| Gary A. Gregg             |       | 57      |       | Chief Operating Officer         |       |
| Deborah J. Pierce         |       | 59      |       | Chief Financial Officer         |       |
| John T. Blakely           |       | 63      |       | Management Board                |       |
| Gilbert DiGiannantonio(1) |       | 59      |       | Management Board                |       |
| Edward C. Droste          |       | 56      |       | Management Board                |       |
| Sukeaki Izumi(2)          |       | 70      |       | Management Board                |       |
| Toyoroku Izumi(2)         |       | 45      |       | Management Board                |       |
| Dennis D. Johnson         |       | 57      |       | Management Board                |       |
| David L. Lageschulte      |       | 56      |       | Management Board                |       |
| William R. Ranieri(1)     |       | 87      |       | Management Board                |       |

----

(1)             Mr. DiGiannantonio is the son-in-lawof Mr. Ranieri.

(2)             Mr. Sukeaki Izumi is the father of Mr. ToyorokuIzumi.

 

**BusinessExperience**

** **

*Neil G. Kiefer.*  Mr. Kiefer was appointed our ChiefExecutive Officer in August 2004. Mr. Kiefer has been involved in theHooters organization since its inception in 1983, when he incorporated theoriginal Hooters entity, Hooters Inc. From 1983 to 1992, Mr. Kieferserved as general outside counsel to Hooters Inc. and its related Hootersentities. From May 1992 to June 1994, Mr. Kiefer served asPresident and Chief Executive Officer of Hooters Management Corporation, themanaging entity for Hooters Inc. and its affiliated companies. Since June 1994,Mr. Kiefer has served as President and Chief Executive Officer ofHooters Inc. and all other Hooters corporations affiliated withHooters Inc. Mr. Kiefer was elected to the Hooters Inc. board ofdirectors in 1994 and continues to serve on the board.

 

*Michael J. Hessling.*  Mr. Hessling was appointed to our managementboard in July 2004 and was appointed our President in June 2006. Mr. Hesslinghas been involved in the gaming industry since 1979 when he joined CaesarsPalace as Manager of Financial Planning. Before his departure in 1983, Mr. Hesslingwas promoted to Assistant Vice President of Planning and Administration and,after assisting in the opening of Caesars Tahoe, served as management liaisonbetween the Tahoe and Las Vegas operations. During 1983, Mr. Hesslingserved as Vice President of Casino Operations for CSP, a management companythat operated the Dunes Hotel & Casino. From 1983 to 1988, Mr. Hesslingserved as general manager of several small casinos in Las Vegas. From 1989 to2005, Mr. Hessling was a part owner of and served as Treasurer and a directorfor Beatty Future Inc., which owned a casino motel in rural Nevada. From1989 until June 2004, Mr. Hessling served as Executive VicePresident, General Manager and Chief Operating Officer of the Hôtel San Rémo.

 

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*Gary A. Gregg.*  Mr. Gregg was appointed our ChiefOperating Officer in October 2006. From 1988 to 1993, Mr. Gregg served as President for the FlamingoHilton Laughlin and was responsible for the property’s operations andprofitability.  From 1993 to 1997, Mr. Greggserved as President and Senior Vice President for the Las Vegas Hilton andHilton Hotels Corporation, where he was responsible for the company’s overalloperations and profitability.  From 1998to 2001, Mr. Gregg served as General Manager for the Regency Casino byHyatt located in Thessaloniki, Greece, where, in addition to his operationalresponsibilities, he was also responsible for overall regulatory issuesincluding administration of all policies and procedures.  From 2001 to 2003, Mr. Gregg served asGeneral Manager for the Hollywood Casino located in Shreveport, Louisiana wherehe was also responsible for the operational and regulatory aspects of thecompany’s business.  From July 2004until October 2006, Mr. Gregg served as President for Daily Edge, LLCwhere he managed sales representatives, trade shows, and associated sales andmarketing services.

 

*Deborah J. Pierce.*  Ms. Pierce was appointed our ChiefFinancial Officer in February 2005. From June 1995 to May 1998, Ms. Pierceserved as Vice President of Finance for Tropicana Resort & Casino andwas responsible for various financial and operational aspects of theorganization’s business. From June 1998 to November 1998, Ms. Pierceserved as Chief Financial Officer, Secretary and Treasurer of Palace REIT, areal estate investment trust formed in 1998 to acquire office and industrialproperties in selected markets in the United States. From November 1998 toJune 2003, Ms. Pierce served as Vice President of Finance forAmeristar Casinos, Inc. From July 2003 to August 2004, Ms. Pierceserved as Vice President of Finance for Silverton Casino, LLC where she wasresponsible for various financial, regulatory and operational aspects of thecompany’s business. From November 2004 to February 2005, Ms. Pierceserved as Chief Financial Officer of Fantasy Springs Resort & Casino.

 

*John T. Blakely.*  Mr. Blakely was appointed to ourmanagement board in July 2004. Mr. Blakely has been practicing law inFlorida since 1970. In 1973, Mr. Blakely practiced in the Tampa andClearwater offices of Johnson, Blakely, Pope, Bokor, Ruppel and Burns and was apartner when he left in 2003. Since 2003, Mr. Blakely has been a partnerwith the Naples office of Roetzel & Andress, a national law firm basedin Akron, Ohio. Mr. Blakely has served as Director (1999 to 2002) andPresident (2001 to 2002) of the Port Royal Club in Naples, Florida.

 

*Gilbert DiGiannantonio.*  Mr. DiGiannantonio was appointed to ourmanagement board in July 2004. Mr. DiGiannantonio is one of theoriginal founders of the Hooters restaurant, concept and brand. He served asthe Vice President of Operations and Vice President of Hooters Inc. inpast years. Mr. DiGiannantonio is also the co-owner of one Hootersrestaurant in Las Vegas, Nevada. In addition, he is an owner of the Pete &Shorty’s of Clearwater restaurant.

 

*Edward C. Droste.*  Mr. Droste was appointed to ourmanagement board in July 2004. Mr. Droste is one of the originalfounders of the Hooters restaurant, concept and brand. Mr. Drosteco-founded several restaurant concepts, including Pete & Shorty’sTavern and Adobe Gila’s and was involved in the conceptual development of DanMarino’s Town Tavern and Stumps Supper Club. Currently, Mr. Droste servesas Chief Executive Officer of Provident Management Corporation, a resortmanagement company, which he founded (since 1989), and as a director forHooters Management Corporation (since 1992). In 1986, Mr. Droste foundedProvident Advertising & Marketing, Inc., which is responsible forcoordinating the promotional activities for the Hooters restaurants and thenational distribution of the Hooters calendar. In 1995, Mr. Droste foundedProvident Entertainment, Inc., an entertainment company that produces atwo-hour radio talk show and is in talks to produce a motion picture. Mr. Drostealso serves on the board of directors for the Outback Bowl (since 2004), the H.Lee Moffitt Cancer Center & Research Institute Foundation, Inc.(since 2003), and the Clearwater Regional Chamber of Commerce (since 1993).  In January 2007, Mr. Droste beganserving a two-year term as the Executive Vice Chairman for the H. Lee MoffittCancer Center and Research Institute Foundation, Inc.

 

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*Sukeaki Izumi.*  Mr. Izumi was appointed to ourmanagement board in July 2004. Mr. Izumi was the founder of Eastern &Western, which was formed in 1988 to acquire, remodel, expand and operate theHôtel San Rémo property. Since 1988, Mr. Izumi has served as the Presidentand Director of Eastern & Western. Mr. Izumi also serves as President and Director of S.I.Enterprises, LLC (formerly known as S.I. Enterprises, Inc.), theentity which wholly owns Eastern & Western (since 1990and I &F Corporation, Japan (since 1973). ).  He also owned Beatty Future, Inc.from 1989 to 2005, which owned a casino motel in rural Nevada.   Mr. Izumi served as President, Chairmanand Director of Hakusui Tech, Co., Ltd. from 1992 to 2002. Hakusui Tech.Co., Ltd. filed an application for the commencement of civilrehabilitation proceedings with a Japanese court in June 2002. As a resultof such filing, the company underwent court-supervised reorganization.  On January 31, 2006, the Japanese courthas released Hakusui Tech. Co., Ltd. from its supervision, and Hakusui Tech.Co., Ltd. is no longer involved in civil rehabilitation proceedings.  Currently, Hakusui Tech. Co., Ltd. is a goodstanding corporation.

 

*Toyoroku Izumi.*  Mr. Izumi was appointed to ourmanagement board in July 2004. Mr. Izumi has been a director,Secretary and Treasurer of Eastern & Western since 1990. From 1996 to2002, Mr. Izumi served as Vice President of Beatty Future, Inc., anentity in which he has an ownership interest. Mr. Izumi also serves asdirector, Treasurer and Assistant Secretary of S.I. Enterprises, LLC(formerly known as S.I. Enterprises, Inc.), the entity that wholly ownsEastern & Western (since 1995), and as a director of I&FCorporation, Japan (since 1997). Mr. Izumi has been serving as thePresident of Hakusui Tech, Co., Ltd. since 2000. Hakusui Tech.Co., Ltd. filed an application for the commencement of civilrehabilitation proceedings with a Japanese court on June 21, 2002. As aresult of such filing, the company underwent court-supervisedreorganization.  On January 31, 2006,the Japanese court has released Hakusui Tech. Co., Ltd. from its supervision,and Hakusui Tech. Co., Ltd. is no longer involved in civil rehabilitationproceedings.  Currently, Hakusui Tech.Co., Ltd. is a good standing corporation.

 

*Dennis D. Johnson.*  Mr. Johnson was appointed to ourmanagement board in August 2004. Mr. Johnson is one of the originalfounders of the Hooters restaurant, concept and brand. In 1994, Mr. Johnsonjoined the corporate office of Hooters Inc. and was responsible formaintaining the integrity of the Hooters trademark through quality control,store inspections and site selections until 2002. From 1994 to 2004, Mr. Johnsonserved as the Vice President of Hooters Management Corporation. Since 2000, Mr. Johnsonhas served as the Vice President of Merchandise Sales. Since 1992, Mr. Johnsonhas been a member of the Hooters Management Corporation board of directors.

 

*David L. Lageschulte.*  Mr. Lageschulte was appointed to ourmanagement board in July 2004. Mr. Lageschulte is the controllingshareholder of the original licensee of the Hooters restaurant concept andbrand. Mr. Lageschulte controls and is the Chief Executive Officer of 19Hooters restaurants which operate throughout Southeast and Southwest Florida,and in the State of Nevada. Mr. Lageschulte is the Chief Executive Officerof LTP Management Group, Inc., a restaurant managing entity for 32restaurants, which he established in 1987. Mr. Lageschulte co-foundedseveral restaurant and entertainment concepts including Dan Marino’s Fine Food &Spirits, Adobe Gila’s, Ugly Tuna Saloona, Stumps Supper Club and Splitsville. Mr. Lageschultealso owns several corporations, in Florida and other states, which are involvedin an array of operations including health and fitness centers, heavy equipmentsales and leasing, well drilling and real estate investments.

 

*William R. Ranieri.*  Mr. Ranieri was appointed to ourmanagement board in July 2004. Mr. Ranieri is one of the originalfounders of the Hooters restaurant, concept and brand and, since 1983, hasserved as a director for Hooters Management Corporation, Hooters Inc. andits related entities.

 

88

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**Committeesof our Management Board**

** **

Our management board currently does not haveany committees. More specifically, our management board does not have acompensation committee or an audit committee. The guidelines and pay levels forthe compensation of executive officers are generally established by themanagement board. All the functions of an audit committee are performed by theentire management board.

 

**Codeof Ethics**

** **

Due to our limited size, wehave not yet adopted a code of ethics that applies to our principal executiveofficer, principal financial officer, principal accounting officer or controller,or persons performing similar functions.

 
| **ITEM 11.** | **EXECUTIVE COMPENSATION.** | ** ** |
|--------------|-----------------------------|------------|

## ** **

**CompensationDiscussion and Analysis**

** **

We do not have a compensation committee orformalized program for determining executive compensation.  All decisions regarding executivecompensation for the Chief Executive Officer, President, and Chief OperatingOfficer are made at the sole discretion of our management board.  Our Chief Executive Officer, President, andChief Operating Officer have the discretion to award reasonable annual payincreases for other executives.  Themanagement board has not used an outside consultant in connection with makingcompensation decisions.

 

Our management board strives to award executivecompensation at a level that will attract, motivate, and retain talented anddedicated executive officers.  For thefiscal year ended December 31, 2007, the components of compensation fornamed executive officers were base salary, paid premiums for life insurancepolicies, and company contributions to our 401(k) plan.

 

In setting base salaries, the management boardconsiders executive experience, current position’s responsibility, and certainrelevant market data. Bonuses may be awarded to salaried employees andexecutive management. The bonuses are discretionary and are based on financialachievement evaluated at the time the bonuses are granted.  No bonuses were awarded for the fiscal yearended December 31, 2007 based on the financial level achieved by theCompany.

 

Executive officers are eligible to participate inour 401(k) plan as are all regular full-time employees not covered by acollective bargaining agreement who have completed at least three months ofcontinuous service.  The Company’scontributions to the 401(k) plan are at the discretion of the managementboard.  The Company’s plan allows for acompany match of 25% of each dollar contributed by the employee, not to exceed1% of a participant’s annual compensation.

 

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**Summary Compensation Table**

 

The following table sets forth the cash compensationwe paid to the five most highly compensated employees during the year ended December 31,2007 for services to the Chief Executive Officer, Chief Financial Officer, andcertain other most highly compensated executive officers during the year ended December 31,2007:

 
| **Name and Principal Position**    | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **All Other Compensation (1)** | ** ** | **Total** | ** ** |
|------------------------------------|------------|----------|------------|------------|------------|-----------|------------|--------------------------------|------------|-----------|------------|
| Neil G. Kiefer                     |       | 2007     |       | $          | 100,000    |      | $          | —                         |       | $         | 1,000      |   | $ | 101,000 |   |
| Chief Executive Officer            |       | 2006     |       | $          | 101,964    |      | $          | —                         |       | $         | 1,552      |   | $ | 103,516 |   |
| Deborah J. Pierce                  |       | 2007     |       | $          | 160,961    |      | $          | —                         |       | $         | 2,155      |   | $ | 163,116 |   |
| Chief Financial Officer            |       | 2006     |       | $          | 154,230    |      | $          | —                         |       | $         | 2,095      |   | $ | 156,325 |   |
| Michael J. Hessling                |       | 2007     |       | $          | 275,000    |      | $          | —                         |       | $         | 1,188      |   | $ | 276,188 |   |
| President                          |       | 2006     |       | $          | 276,340    |      | $          | —                         |       | $         | 1,188      |   | $ | 277,528 |   |
| Kim L. Tyler                       |       | 2007     |       | $          | 160,957    |      | $          | —                         |       | $         | 2,155      |   | $ | 163,112 |   |
| Sr. VP of Food & Beverage |       | 2006     |       | $          | 154,406    |      | $          | 50,000                         |       | $         | 2,590      |   | $ | 206,996 |   |
| Gary Gregg                         |       | 2007     |       | $          | 250,000    |      | $          | —                         |       | $         | 2,488      |   | $ | 252,488 |   |
| Chief Operating Officer            |       |     |       |       |       |      |       |                           |       |      |       |

----

| (1) |   | All other compensation  includes $538 in premiums paid for life insurance policies insuring the lives  of the executive officers and the Company’s contributions to the employees’  401(k) plan. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**EmploymentContracts**

** **

EffectiveOctober 31, 2006, we signed an employment agreement with Michael J.Hessling to serve as President.  Theterms of the agreement stated that Mr. Hessling serve as our President fora period of one year from the effective date of the agreement.  Under the signed employment agreement, Mr. Hesslingwas paid an annual base salary of $275,000 and was entitled to participate in abonus program, if a bonus program had been established for our seniormanagement team. Subsequent to October 31, 2007, Mr. Hessling hascontinued to serve as President without an employment contract, at the sameannual base salary of $275,000.

 

EffectiveOctober 30, 2006, we signed an employment agreement with Gary A. Gregg toserve as Chief Operating Officer.  Theterms of the agreement states that Mr. Gregg will serve as our Chief OperatingOfficer for a period of three years from the effective date of theagreement.  Under the signed employmentagreement, Mr. Gregg will be paid an annual base salary of $250,000 andwill be eligible to 

 

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receive an annual performance bonus based on targetedEBITDA (as defined in the employment agreement) levels.  If we choose to terminate Mr. Gregg’semployment without cause, Mr. Gregg will be entitled to receive separationpay equal to six months of base salary at the then current rate.  On March 23, 2007, we signed a change ofcontrol agreement with Mr. Gregg, which will expire on April 30,2008.  The agreement defines a change ofcontrol as the successful sale of a majority of our membership interests ascontemplated in the revised letter of intent that was signed by us on March 14,2007.  Under the change of controlagreement, if employed by us at the time of a change in control, Mr. Greggis entitled to receive a change of control bonus equal to his then currentsalary plus the prorated amount of any annual bonus he would have been entitledto at the end of the calendar year under his employment agreement.  If Mr. Gregg is terminated without causewithin twelve months after the change of control, he will be entitled to anadditional amount of up to twelve months salary.  The change of control agreement lists thecircumstances under which we can terminate the agreement. The purpose of thechange of control agreement is to provide an incentive to Mr. Gregg tocontinue employment with the Company through at least the change of controldate.

 

EffectiveFebruary 1, 2005, we signed an employment agreement with Deborah J. Pierceto serve as our Chief Financial Officer. Under the signed employment agreement, Ms. Pierce will be paid anannual base salary of $150,000 plus annual raises, and will be entitled toparticipate in a bonus program for up to $50,000, if a bonus program isestablished.  If we choose to terminate Ms. Pierce’semployment without cause, Ms. Pierce will be entitled to receiveseparation pay equal her monthly gross salary for six months after thetermination.  On March 23, 2007, wesigned a change of control agreement with Ms. Pierce, which will expire onApril 30, 2008.  The agreementdefines a change of control as the successful sale of a majority of ourmembership interests as contemplated in the revised letter of intent that wassigned by us on March 14, 2007. Under the change of control agreement, if employed by us at the time ofa change in control, Ms. Pierce is entitled to receive a change of controlbonus equal to one half of her then current salary.  If Ms. Pierce is terminated withoutcause within six months after the change of control, she will be entitled to anadditional amount of up to six months salary on the condition that shecontinues to assist us in finalizing our records for a reasonable period.  The change of control agreement lists thecircumstances under which we can terminate the agreement. The purpose of thechange of control agreement is to provide an in incentive to Ms. Pierce tocontinue employment with the Company through the change of control date and toa reasonable period beyond. In 2007, in recognition of the additional workinvolved with duties associated with the Asset Purchase Agreement between theCompany and Hedwigs Las Vegas Top Tier, LLC, the Company signed a bonusagreement with Deborah J. Pierce awarding a bonus of $40,000 at the time thetransaction is consummated or a $20,000 bonus if the transaction is notconsummated.

 

EffectiveOctober 27, 2004, we signed an employment agreement with Kim L. Tyler toserve as our Senior Vice-President of Food and Beverage.  Under the signed employment agreement, Mr. Tylerwill be paid an annual base salary of $150,000 plus annual raises, and will beentitled to participate in a bonus program for up to $50,000, if a bonusprogram is established.  If we choose toterminate Mr. Tyler’s employment without cause, Mr. Tyler will beentitled to receive separation pay equal his monthly gross salary for sixmonths after the termination.  On March 23,2007, we signed a change of control agreement with Mr. Tyler, which willexpire on April 30, 2008.  Theagreement defines a change of control as the successful sale of a majority ofour membership interests as contemplated in the revised letter of intent thatwas signed by us on March 14, 2007. Under the change of control agreement, if employed by us at the time ofa change in control, Mr. Tyler is entitled to receive a change of controlbonus equal to one half of his then current salary.  If Mr. Tyler is terminated without causewithin six months after the change of control, he will be entitled to anadditional amount of up to six months salary. The change of control agreement lists the circumstances under which wecan terminate the agreement.  The purposeof the change of control agreement is to provide an incentive to Mr. Tylerto continue employment with the Company through at least the change of controldate.

 

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**Compensationof Management Board**

** **

The members of our management board currentlydo not receive any separate compensation for serving on our management board.All members of our management board are reimbursed for air, meal, and othertravel expenses incurred in connection with attendance at board meetings.

 

**Options,Long Term Incentive and Other Benefit Plans**

** **

We do not maintain a stock option plan or anysimilar employee benefit plan. Accordingly, during the last fiscal year, we have not issued any optionsor stock to any of its executive officers or directors.  In addition, there have not been anyexercises or re-pricings of stock options or stock appreciation rights held byany of our executive officers or directors.

 

**Management BoardInterlocks and Insider Participation**

 

Gary A. Gregg, our ChiefOperating Officer, participates in discussions regarding compensation forexecutive officers and other employees.

 

**THE FOLLOWING REPORT OF THEMANAGEMENT BOARD SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILEDWITH THE SEC UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.**

 

**ManagementBoard Compensation Report**

 

Our management board hasreviewed and discussed the above Compensation Discussion and Analysis with ourmanagement and determined that the Compensation Discussion and Analysis beincluded in this annual report.

 
| March 30, 2008 | MANAGEMENT BOARD

 

Michael J. Hessling

Toyoroku  Izumi

Sukeaki  Izumi

William  R. Ranieri

David  L. Lageschulte

Edward  C. Droste

Gilbert  DiGiannantonio

John  T. Blakely

Dennis  D. Johnson |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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## ** **

## **ITEM 12.**                      SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

## ** **

The following table shows informationregarding the beneficial ownership of our membership interests as of December 31,2007, and sets forth the number of and percentage owned by:

 

·                  each personknown to own beneficially more than 5% of any units of our membershipinterests;

 

·                  each of themembers of our management board and named executive officers; and

 

·                  all of ourmanagement board and executive officers as a group.

 

A person is a “beneficial owner” of asecurity if that person has or shares “voting power,” which includes the powerto vote or to direct the voting of the security, or “investment power,” whichincludes the power to dispose of or to direct the disposition of the security.

 
| **Name of Beneficial Owner**                                                                 | ** ** | **Number of Units  Beneficially Owned** | ** ** | **Percent of  Units  Owned Beneficially** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------|------------|
| *Florida Hooters LLC*(1)**107 Hampton Road #200   Clearwater, FL 33759                       |       | 66.67                                   |       | 66.67                                     | %          |
| Hooters Gaming LLC   107 Hampton Road #200   Clearwater, FL 33759                            |       | 33.40                                   |       | 33.40                                     | %          |
| Gilbert DiGiannantonio(2)107 Hampton Road #200   Clearwater, FL 33759                        |       | 16.52                                   |       | 16.52                                     | %          |
| William Ranieri(3)   107 Hampton Road #200   Clearwater, FL 33759                            |       | 6.61                                    |       | 6.61                                      | %          |
| Edward Droste(4)107 Hampton Road #200   Clearwater, FL 33759                                 |       | 3.97                                    |       | 3.97                                      | %          |
| Dennis Johnson(5)107 Hampton Road #200   Clearwater, FL 33759                                |       | 0.66                                    |       | 0.66                                      | %          |
| Neil Kiefer(6)107 Hampton Road #200   Clearwater, FL 33759                                   |       | 1.67                                    |       | 1.67                                      | %          |
| Lags Ventures, LLC   4411 Cleveland Avenue   Ft. Myers, FL 33901                             |       | 33.27                                   |       | 33.27                                     | %          |
| David Lageschulte(7)4411 Cleveland Ave.   Ft. Myers, FL 33902                                |       | 33.27                                   |       | 33.27                                     | %          |
| *EW Common LLC*(8)**115 East Tropicana Ave.   Las Vegas, NV 89109                            |       | 33.33                                   |       | 33.33                                     | %          |
| Eastern & Western Hotel Corporation(9)115 East Tropicana Ave.   Las Vegas, NV 89019 |       | 30.00                                   |       | 30.00                                     | %          |
| S.I. Enterprises, Inc.(10)115 East Tropicana Ave.   Las Vegas, NV 89019                 |       | 30.00                                   |       | 30.00                                     | %          |
| Sukeaki Izumi(10)(11)115 East Tropicana Ave.   Las Vegas, NV 89109                           |       | 2.10                                    |       | 2.10                                      | %          |
| Toyoroku Izumi(10)(12)115 East Tropicana Ave   Las Vegas, NV 89109                           |       | 27.90                                   |       | 27.90                                     | %          |
| Michael J. Hessling(13)115 East Tropicana Ave.   Las Vegas, NV 89109                         |       | 3.33                                    |       | 3.33                                      | %          |
| *All Management Board and  Executive Officers as a group*(11 persons)                        |       | 96.04                                   |       | 96.04                                     | %          |

 

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(1)                          The membership interests of FloridaHooters LLC are owned 50.1% by Hooters Gaming LLC and 49.9% by Lags Ventures,LLC.

 

(2)                          By virtue of his 49.474% ownershipinterest in Hooters Gaming LLC, Mr. DiGiannantonio is deemed tobeneficially own 16.52% of our membership interests.

 

(3)                          By virtue of his 19.789% ownershipinterest in Hooters Gaming LLC, Mr. Ranieri is deemed to beneficially own6.61% of our membership interests.

 

(4)                          By virtue of his 11.885% ownershipinterest in Hooters Gaming LLC, Mr. Droste is deemed to beneficially own3.97% of our membership interests.

 

(5)                          By virtue of his 1.979% ownershipinterest in Hooters Gaming LLC, Mr. Johnson is deemed to beneficially own0.66% of our membership interests.

 

(6)                          By virtue of his 5.000% ownershipinterest in Hooters Gaming LLC, Mr. Kiefer is deemed to beneficially own1.67% of our membership interests.

 

(7)                          By virtue of his sole ownership andcontrol of Lags Ventures, LLC, Mr. Lageschulte is deemed to beneficiallyown all of our membership interests beneficially owned by LagsVenture, LLC.

 

(8)                          The membership interests of EW Common LLCare owned 90% by Eastern & Western and 10% by Michael Hessling.

 

(9)                          Eastern & Western is whollyowned by S.I. Enterprises, Inc.

 

(10)                    S.I. Enterprises, Inc. was converted into alimited-liability company on February 28, 2005 and is now known asS.I. Enterprises, LLC. The interests in S.I. Enterprises, Inc.are owned 93% by Toyoroku Izumi and 7% by Sukeaki Izumi. By virtue of its soleownership of Eastern & Western, S.I. Enterprises, Inc. is deemedto beneficially own all of our membership interests beneficially owned byEastern & Western.

 

(11)                    By virtue of his 7% ownership of S.I. Enterprises, Inc.,Mr. S. Izumi is deemed to beneficially own 2.10% of our membershipinterests.

 

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(12)                    By virtue of his 93% ownership of S.I. Enterprises, Inc.,Mr. T. Izumi is deemed to beneficially own 27.90% of our membershipinterests.

 

(13)                    By virtue of his 10% ownership of EW Common LLC, Mr. Hesslingis deemed to beneficially own 3.33% of our membership interests.

 

## **ITEM 13.**                      CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS.

## ** **

We believe that all of the transactionsmentioned below are on terms at least as favorable to us as would have beenobtained from an unrelated third party.

 

The Company’s Compliance Policies considerrelated party transactions as “potential conflicts of interest”.  Before engaging in “potential conflicts ofinterest,” proposed activities are reviewed by company management and reportedto the Compliance Committee, which comprises of two management board membersand three company officers.  Themanagement board also reviews all related party transactions on a case by casebasis and approves any such transaction in accordance with Nevada corporatelaw.  In addition, the Notes issued by us prohibit us from entering intocertain transactions with certain related parties unless it is determined thatthe terms of the transaction are fair and reasonable to us, and no lessfavorable than could have been obtained in an arm’s length transaction with anunrelated party.  The Notes require additional approvals before we mayenter into certain related transactions in which the consideration to eitherparty in the transaction would exceed specified thresholds.

 

**Florida Hooters LLC and Related Entities**

** **

We have entered into an assignment agreementwith Florida Hooters LLC whereby we have been assigned (i) a license touse certain intellectual property related to the Hooters brand in connectionwith gaming, casino or combined hotel gaming and casino operations at theHooters Casino Hotel property; (ii) a non-exclusive license to use theHooters restaurant concept at the Hooters Casino Hotel property; and (iii) anexclusive license to use certain intellectual property to operate and promoterestaurants, taverns, lounges and bars using the marks “Dan Marino’s Fine Food &Spirits” and “‘13’ Martini Bar,” which is operated in conjunction with DanMarino’s Fine Food & Spirits, at the Hooters Casino Hotelproperty.  Pursuant to the assignmentagreement, we must pay certain fees to related entities.

 

Hooters Gaming Corporation is a relatedentity which is owned by certain members of our management board (GilbertDiGiannantonio (52.078%), William Ranieri (20.831%), Edward Droste (12.510%),and Dennis Johnson (2.083%)) as well as some of our other indirect minorityinterest owners. Las Vegas Wings, Inc. is a related entity that is ownedby David Lageschulte (50.69%), Gilbert DiGiannantonio (14.18%) and WilliamRanieri (5.13%), all of whom are members of our management board and indirectmembership interest owners. Lags Ventures, Inc. is a related entity whichis wholly owned by David Lageschulte, a member of our management board and anindirect beneficial owner (through Lags Ventures, LLC) of 33.27% of ourmembership interests.

 

Pursuant to the terms of our assignmentagreement with Florida Hooters LLC, we accrued the following fees beginning on February 3,2006, the opening of the Hooters Casino Hotel:

 

·                  *Hooters Gaming Corporation.*  We pay Hooters Gaming Corporation a fee equalto three percent of all net gaming revenues generated from our gamingactivities (as defined by Nevada law). The fee accrues on a monthly basis.

 

·                  *Las Vegas Wings, Inc.*  We pay Las Vegas Wings, Inc. a consentfee equal to four percent of gross cash sales from any Hooters brandedrestaurant and three percent of the gross 

 

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cash sales of any merchandise with a Hooters logo at any location on orabout the Hooters Casino Hotel.  Thisconsent fee accrues monthly.

 

·                  *Lags Ventures, Inc.*  The “Dan Marino’s Fine Food &Spirits” and “‘13’ Martini Bar” marks used in connection with restaurantservices at the Hooters Casino Hotel property, require us to pay Lags Ventures, Inc.a royalty equal to six percent of gross cash sales generated from suchestablishments. This mark fee is calculated on a monthly basis, subject to anysubordination or deferral agreed to by Lags Ventures, Inc., and is payableno later than 30 days after the termination of the preceding full calendarmonth. In addition to the mark fee, we pay Lags Ventures, Inc. alltraining fees, set-up fees and other start-up items customarily incurred byLags Ventures, Inc. in similar licensing situations. These additional feesand amounts are not and will not be subordinated or deferred to any otheramount.

 

Hooters Gaming Corporation, Las Vegas Wings, Inc.and Lags Ventures, Inc. have agreed to subordinate payment of theirrespective fees in favor of the obligations of 155 East Tropicana, LLC and itssubsidiaries under the Notes and any guarantees of the Notes, certain paymentsto be made pursuant to our operating agreement, and any fees due to any of themwill accrue and remain unpaid until there is sufficient net cash flow fromoperations to make all of the foregoing payments. In addition, the foregoingfees are subject to applicable limitations in the indenture governing theNotes, such as the limitation on restricted payments to the extent theyconstitute restricted payments.

 

**Other Transactions**

** **

*Provident Advertising &Marketing, Inc.*  ProvidentAdvertising & Marketing, Inc.’s majority shareholder is Edward C.Droste, a member of our management board and an indirect beneficial owner of3.96% of our membership interests. Beginning 2004, Provident Advertising & Marketing, Inc.provided us with services relating to the planning and development of anadvertising and marketing plan.  Theaggregate marketing fee and merchandise fee paid to Provident Advertising &Marketing, Inc. for the years ended December 31, 2007, 2006 and 2005was approximately $0.2 million, $0.6 million and $0.2 million,respectively.  For the years ended December 31,2007, 2006 and 2005, we paid $1,553,184, $3,033,070 and $89,511, respectively,to Provident Merchandise Sourcing, and $502, $6,420 and $179, respectively, toProvident Creative for uniforms and for merchandise to sell in our giftshops.  Both Provident MerchandiseSourcing and Provident Creative are affiliated with Provident Advertising &Marketing, Inc.  We will continue toengage Provident Advertising & Marketing, Inc. for the continueddevelopment and implementation of a strategic marketing plan in connection withthe Hooters Casino Hotel.

 

Our Notes indenture required that we engagean independent valuation firm to determine that the related party transactionsare valued at arm’s-length prices if the total expenditures to Providentaggregate $2.5 million.  Anationally-recognized valuation firm issued a favorable opinion in 2006 thatthe related party transactions with Provident had been conducted in a mannerconsistent with the arm’s length standard.

 

*Eastern & Western HotelCorporation.*  Afteracquiring the property, but prior to obtaining our gaming licenses, we enteredinto a casino lease with Eastern & Western as the operator of allareas of the Hôtel San Rémo relating to casino gaming. Pursuant to the terms ofthe lease, Eastern & Western leased from us those portions of theHôtel San Rémo containing the showroom, gaming and liquor servicing areas,including areas containing and immediately adjacent to slot machines, videomachines, all gaming devices, table games, the poker room, keno area, baccaratareas, and other areas which are subject to direct supervision by the NevadaGaming Authorities, as well as all surveillance areas, counting rooms,

 

96

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cashier cages and otherareas ancillary to casino gaming. We also entered into a hotel lease withEastern & Western as the operator of all non-casino areas of the HôtelSan Rémo. These leases were terminated on November 1, 2005, after wereceived our gaming licenses.  Eastern &Western paid us an aggregate amount of approximately $5.4 million under theleases during the year ended December 31, 2005.

 

*Hawkeye Construction and Millwork, Inc.*  Hawkeye Construction and Millwork, Inc.is co-owned by David Lageschulte, a member of our management board and anindirect beneficial owner of 33.27% of our membership interests. In February 2005,we entered into an agreement with Hawkeye Construction and Millwork, Inc.whereby Hawkeye Construction and Millwork, Inc. would manage theconstruction and renovation project at the hotel casino property. Totalcompensation for services is two percent (2%) of the construction andfurniture, fixtures and equipment costs, but will not exceed $600,000. The feeis paid on a monthly basis.  The Company’spayments to Hawkeye Construction and Millwork, Inc. in relation to theconstruction and renovation management agreement totaled $0.1 million and $0.5million for the years ended December 31, 2006 and 2005, respectively. Nopayments were made to Hawkeye Construction in the year ended December 31,2007.

 

*Pete & Shorty’s, Inc.*  Pete & Shorty’s, Inc. is ownedby our chief executive officer, Neil Kiefer (6.39%), certain members of ourmanagement board (Gilbert DiGiannantonio (12.77%), William Ranieri (4.26%),Edward Droste (14.00%), and Dennis Johnson (9.34%)), and an indirect minorityinterest owner. In March 2005, we entered into a license agreement withPete & Shorty’s, Inc. whereby we were granted a nonexclusive,royalty-free license to use the Pete & Shorty’s mark in connectionwith a restaurant, bar and lounge at the Hooters Casino Hotel. Pursuant to thelicense agreement, we can also use the mark in connection with affiliatedmerchandise, entertainment and casino services.

 

## **ITEM 14.**                      PRINCIPAL ACCOUNTINGFEES AND SERVICES.

## ** **

The aggregate accountingfees billed and services provided by Ernst & Young LLP, our principalaccountants, to us and Hôtel San Rémo Casino and Resort for 2007, 2006 and 2005are as follows:

 
| **155 East Tropicana, LLC** | ** ** | **Year ended  December 31,  2007** | ** ** | **Year ended  December 31,  2006** | ** ** | **Year ended  December 31,  2005** | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| Audit fees (1)              |       | $                                       | 190,021    |                                    | $          | 187,631                                 |       | $ | 104,626 |   |
| Audit-related fees (2)      |       | —                                  |       | —                                  |       | 8,100                                   |       |
| All other fees (3)          |       | —                                  |       | 5,025                                   |       | 410,202                                 |       |
| Total fees                  |       | $                                       | 190,021    |                                    | $          | 192,656                                 |       | $ | 522,928 |   |

 
| **Hôtel San Rémo Casino and  Resort** | ** ** | **Ten months ended October 31, 2005** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------|------------|
| Audit fees (1)                                  |       | $                                          | 97,068     |   |
| Audit-related fees (2)                          |       | —                                     |       |
| Tax fees                                        |       | —                                     |       |
| All other fees                                  |       | —                                     |       |
| Total fees                                      |       | $                                          | 97,068     |   |

 

97

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(1)          Represents the aggregate fees Ernst &Young LLP billed us and Hôtel San Rémo Casino and Resort for professionalservices for the audits of our annual financial statements and review offinancial statements included in our reports on Form 10-Q or services thatare normally provided by Ernst & Young LLP in connection with thosefilings.  The 2005 audit fees for HôtelSan Rémo includes $36,000 related to Ernst & Young LLP performing anaudit of the 2002 combined financial statements that was invoiced in March 2005.

 

(2)          Represents the aggregate fees Ernst &Young LLP billed us and Hôtel San Rémo Casino and Resort for assurance andrelated services that are reasonably related to the performance of the auditsin 2007, 2006 and 2005.

 

(3)          Represents the aggregate fees Ernst &Young LLP billed for other than the items described in 1—3 above. The fees of$5,025 paid in 2006 represent fees billed to us for professional servicesrendered in connection with the agreed-upon-procedures related to the ownershiptransfer of the Hôtel San Rémo Casino and Resort.  The fees of $410,202 paid in 2005 representfees billed to us for assistance related to the offering of the old notes andthe registration statement on Form S-4, declared effective by theSecurities and Exchange Commission on June 24, 2005.

 

We do not have an audit committee.  Fees paid to Ernst & Young LLP, ourprincipal accountants, are pre-approved by the Chief Financial Officer andPresident.

 

# **PART IV**

# ** **

## **ITEM 15.**                      EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES.

## ** **

(a)  Listthe following documents filed as part of the report:

 

(1)           All financial statements.

 

                Included in “Item 8. Financial Statements andSupplementary Data” above.

 

(2)           Financial Statement Schedules.

 

                Not applicable.

 

(3)           Exhibit Index.

 

See exhibitslisted on the Exhibit Index following the signature page of thisAnnual Report, where said Exhibit Index is incorporated herein byreference.

 

(b)  Exhibits.

 

       Included as exhibits are the items listedin the Exhibit Index.

 

(c)  FinancialStatement Schedules

 

       Notapplicable.

 

98

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## **SIGNATURES**

## ** **

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| ** **                | **155 EAST TROPICANA, LLC** |
|---------------------------|-----------------------------|
|                      | (Registrant)                |   |
|                      |                        |   |
|                      |                        |   |
|                      | By:                         | /s/  Neil G. Kiefer |
| Date: March 31, 2008 |                        | Neil  G. Kiefer |
|                      | Its:                        | Chief Executive Officer |
|                           |                             |  |  |

 

        Pursuant to the requirements of theSecurities and Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates included.

 
| **Signature**          | ** ** | **Title**                                                             | ** ** | **Date**            |
|------------------------|------------|-----------------------------------------------------------------------|------------|---------------------|
|                   |       |                                                                  |       |                |
| /s/  Neil G. Kiefer    |       | Chief Executive Officer (Principal Executive  Officer)                |       | March 31, 2008 |
| Neil G. Kiefer         |       |                                                                  |       |                |
|                   |       |                                                                  |       |                |
| /s/  Deborah J. Pierce |       | Chief Financial Officer (Principal Financial and  Accounting Officer) |       | March 31, 2008 |
| Deborah J. Pierce      |       |                                                                  |       |                |
|                   |       |                                                                  |       |                |
| /s/  Michael Hessling  |       | President and Management Board                                        |       | March 31, 2008 |
| Michael Hessling       |       |                                                                  |       |                |
|                   |       |                                                                  |       |                |
| /s/  Toyoroku Izumi    |       | Management Board                                                      |       | March 31, 2008 |
| Toyoroku Izumi         |       |                                                                  |       |                |

 

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|                        |   |             |   |                |
|-----------------------------|--------|------------------|--------|---------------------|
| /s/ Sukeaki Izumi           |   | Management Board |   | March 31, 2008 |
| Sukeaki Izumi               |   |             |   |                |
|                        |   |             |   |                |
| /s/ William Ranieri         |   | Management Board |   | March 31, 2008 |
| William Ranieri             |   |             |   |                |
|                        |   |             |   |                |
| /s/ David Lageschulte       |   | Management Board |   | March 31, 2008 |
| David Lageschulte           |   |             |   |                |
|                        |   |             |   |                |
| /s/ Edward Droste           |   | Management Board |   | March 31, 2008 |
| Edward Droste               |   |             |   |                |
|                        |   |             |   |                |
| /s/ Gilbert  DiGiannantonio |   | Management Board |   | March 31, 2008 |
| Gilbert DiGiannantonio      |   |             |   |                |
|                        |   |             |   |                |
| /s/ John Blakely            |   | Management Board |   | March 31, 2008 |
| John Blakely                |   |             |   |                |
|                        |   |             |   |                |
| /s/ Dennis Johnson          |   | Management Board |   | March 31, 2008 |
| Dennis Johnson              |   |             |   |                |
|                        |   |             |   |                |

 

100

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## **SIGNATURES**

## ** **

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                       | **155 EAST TROPICANA FINANCE  CORP.** | ** **              |
|----------------------------|---------------------------------------|-------------------------|
|                       | (Registrant)                          |                    |
|                       |                                  |                    |
|                       |                                  |                    |
|                       | By:                                   | /s/ Neil G. Kiefer      |
| Date: March 31,  2008 |                                  | Neil  G. Kiefer         |
|                       | Its:                                  | Chief Executive Officer |
|                            |                                       |                         |  |  |

 

Pursuantto the requirements of the Securities and Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates included.

 
| **Signature**         | ** ** | **Title**                                               | ** ** | **Date**            |
|-----------------------|------------|---------------------------------------------------------|------------|---------------------|
|                  |       |                                                    |       |                |
| /s/ Neil G. Kiefer    |       | President (Principal Executive Officer)                 |       | March 31, 2008 |
| Neil G. Kiefer        |       |                                                    |       |                |
|                  |       |                                                    |       |                |
| /s/ Deborah J. Pierce |       | Treasurer (Principal Financial and Accounting  Officer) |       | March 31, 2008 |
| Deborah J. Pierce     |       |                                                    |       |                |
|                  |       |                                                    |       |                |
| /s/ Michael Hessling  |       | Vice President, Secretary and Director                  |       | March 31, 2008 |
| Michael Hessling      |       |                                                    |       |                |
|                  |       |                                                    |       |                |
| /s/ Toyoroku Izumi    |       | Director                                                |       | March 31, 2008 |
| Toyoroku Izumi        |       |                                                    |       |                |

 

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|                        |   |     |   |                 |
|-----------------------------|--------|----------|--------|----------------------|
| /s/ Sukeaki Izumi           |   | Director |   | March  31, 2008 |
| Sukeaki Izumi               |   |     |   |                 |
|                        |   |     |   |                 |
| /s/ William Ranieri         |   | Director |   | March 31, 2008  |
| William Ranieri             |   |     |   |                 |
|                        |   |     |   |                 |
| /s/ David Lageschulte       |   | Director |   | March 31, 2008  |
| David Lageschulte           |   |     |   |                 |
|                        |   |     |   |                 |
| /s/ Edward Droste           |   | Director |   | March 31, 2008  |
| Edward Droste               |   |     |   |                 |
|                        |   |     |   |                 |
| /s/ Gilbert  DiGiannantonio |   | Director |   | March 31, 2008  |
| Gilbert DiGiannantonio      |   |     |   |                 |
|                        |   |     |   |                 |
| /s/ John Blakely            |   | Director |   | March 31, 2008  |
| John Blakely                |   |     |   |                 |
|                        |   |     |   |                 |
| /s/ Dennis Johnson          |   | Director |   | March 31, 2008  |
| Dennis Johnson              |   |     |   |                 |
|                        |   |     |   |                 |

 

102

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## ** **

## **EXHIBIT INDEX**

 
| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1           |       | Articles of Organization  of 155 East Tropicana LLC dated June 17, 2004, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                             |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2           |       | Amended and Restated  Articles of Organization of 155 East Tropicana LLC dated June 28, 2004,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                       |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.3           |       | Articles of Incorporation  of 155 East Tropicana Finance Corp dated March 7, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                                                                                   |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.4           |       | Articles of Organization  of EW Common LLC dated July 23, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                      |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.5           |       | Articles of Organization  of Florida Hooters LLC dated June 15, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.6           |       | Amended and Restated  Articles of Organization of Florida Hooters LLC dated November 5, 2004,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                       |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.7           |       | Amended and Restated  Operating Agreement of 155 East Tropicana, LLC dated March 9, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.8           |       | Code of Bylaws of 155 East  Tropicana Finance Corp. dated March 8, 2005, incorporated by reference  to registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                             |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.9           |       | Operating Agreement of EW  Common LLC dated July 30, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                           |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.10          |       | Operating Agreement of  Florida Hooters LLC dated July 30, 2004, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                                     |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1           |       | Indenture among 155 East  Tropicana, LLC, 155 East Tropicana Finance Corp and The Bank of New York  Trust Company, N.A. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                        |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2           |       | Registration Rights  Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance Corp,  Florida Hooters LLC, EW Common LLC, Jefferies & Company, Inc.  and Wells Fargo Securities, LLC dated March 29, 2005. , incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005. |
|          |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.1          |       | Purchase Agreement among  155 East Tropicana, LLC, 155 East Tropicana Finance Corp,  Jefferies & Company, Inc. and Wells Fargo Securities, LLC dated  March 23, 2005. , incorporated by reference to registrant’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on May 13, 2005.                                                |

 

103

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| 10.2   |   | Senior Secured Notes  Security Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance  Corp and The Bank of New York Trust Company, N.A. dated March 29, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3   |   | Guarantee and Pledge  Agreement between Eastern & Western Hotel Corporation and The Bank  of New York Trust Company, N.A. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.4   |   | Parent Pledge Agreement  among Florida Hooters LLC, EW Common LLC and The Bank of New York Trust  Company, N.A. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.5   |   | Trademark Security  Agreement among 155 East Tropicana LLC, 155 East Tropicana Finance Corp and  The Bank of New York Trust Company, N.A. dated March 29, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.6   |   | Credit Agreement among 155  East Tropicana, LLC, 155 East Tropicana Finance Corp and Wells Fargo  Foothill, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.7   |   | Amendment Number One to  Credit Agreement dated January 30, 2006, incorporated by reference to  registrant’s current report on Form 8-K, as filed with the Securities  and Exchange Commission on February 2, 2006.                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.8   |   | Security Agreement among  155 East Tropicana, LLC, 155 East Tropicana Finance Corp and Wells Fargo  Foothill, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.9   |   | Securities Account Control  Agreement between Wells Fargo Foothill, Inc., Eastern & Western  Hotel Corporation, Wells Fargo Brokerage Services, LLC dated March 29,  2005, incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.10  |   | Securities Account Control  Agreement between Wells Fargo Foothill, Inc., 155 East Tropicana, LLC  and Wells Fargo Brokerage Services, LLC dated March 29, 2005,  incorporated by reference to registrant’s Registration Statement on  Form S-4, as filed with the Securities and Exchange Commission on  May 13, 2005.                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.11  |   | Collateral Account Control  Agreement among 155 East Tropicana, LLC, The Bank of New York Trust Company,  N.A. dated March 29, 2005 (Interest Reserve Account) , incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12  |   | Cash Collateral and  Disbursement Agreement among The Bank of New York Trust Company, N.A., and  155 East Tropicana, LLC and 155 East Tropicana Finance Corp. dated  March 29, 2005, incorporated by reference to registrant’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on May 13, 2005.                                                                                                                      |

 

104

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| 10.13  |   | Guarantee and Pledge  Agreement between Eastern & Western Hotel Corporation and Wells  Fargo Foothill, Inc. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.14  |   | Parent Pledge Agreement  among Florida Hooters, LLC, EW Common LLC and Wells Fargo Foothill, Inc.  dated March 29, 2005, incorporated by reference to registrant’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on May 13, 2005.                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15  |   | Intercompany Subordination  Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance Corp. and  Wells Fargo Foothill, Inc. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.16  |   | Intercreditor and Lien  Subordination Agreement among Wells Fargo Foothill, Inc., The Bank of  New York Trust Company, N.A., 155 East Tropicana, LLC and 155 East Tropicana  Finance Corp. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.17  |   | Deed of Trust, Fixture  Filing with Assignment of Rents and Leases, and Security Agreement by and  from 155 East Tropicana, LLC, to Lawyers Title of Nevada, Inc for the benefit  of Wells Fargo Foothill, Inc. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.18  |   | Leasehold Deed of Trust,  Fixture Filing with Assignment of Rents and Leases, and Security Agreement to  Lawyers Title of Nevada, Inc. for the benefit of Wells Fargo  Foothill, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.19  |   | Assignment of  Entitlements, Contracts, Rents and Revenues between 155 East Tropicana, LLC  and Wells Fargo Foothill, Inc. dated March 29, 2005, incorporated  by reference to registrant’s Registration Statement on Form S-4, as  filed with the Securities and Exchange Commission on May 13, 2005.                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.20  |   | Assignment of Entitlements  and Contracts between Eastern & Western Hotel Corporation and Wells  Fargo Foothill, Inc. dated March 29, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.21  |   | Subordination and  Attornment Agreement and Estoppel Certificate between Wells Fargo  Foothill, Inc., Eastern & Western Hotel Corporation and 155  East Tropicana, LLC dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.22  |   | Consent to Collateral  Assignment of Contract by C&B Nevada, Inc. and Wells Fargo  Foothills, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.23  |   | Consent to Collateral  Assignment of Contract by The PENTA Building Group, Inc. and Wells Fargo  Foothills, Inc. dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                                                                           |

 

105

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| 10.24  |   | Control Agreement among  Wells Fargo Foothill, Inc. Florida Hooters LLC, EW Common LLC and 155  East Tropicana, LLC dated March 29, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.25  |   | Amended and Restated Joint  Venture Agreement between EW Common LLC, Eastern & Western Hotel  Corporation and Florida Hooters dated March 9, 2005, incorporated by  reference to registrant’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on May 13, 2005.               |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.26  |   | Amended and Restated  Assignment Agreement between Hooters Gaming Corporation and Florida Hooters,  LLC dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.27  |   | Amended and Restated  Assignment Agreement between Florida Hooters, LLC and 155 East Tropicana, LLC  dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.28  |   | Amended and Restated Mark  License Agreement between Lags Ventures, Inc. and Florida Hooters, LLC  dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.29  |   | Affirmation and  Acknowledgement between Hooters Gaming Corporation and 155 East Tropicana,  LLC dated March 9, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.30  |   | Trademark License  Agreement between PETE & SHORTY’S, INC., Florida 33763 and 155 East  Tropicana, LLC dated March 11, 2005, incorporated by reference to  registrant’s Registration Statement on Form S-4, as filed with the  Securities and Exchange Commission on May 13, 2005.                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.31  |   | Amendment to License  Agreement between HI Limited Partnership and Hooters Gaming Corporation dated  February 24, 2005, incorporated by reference to registrant’s  Registration Statement on Form S-4, as filed with the Securities and  Exchange Commission on May 13, 2005.                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.32  |   | Collateral Account Control  Agreement among 155 East Tropicana, LLC and The Bank of New York Trust  Company, N.A. dated March 29, 2005 (Renovation Disbursement Account),  incorporated by reference to registrant’s Registration Statement on Form S-4,  as filed with the Securities and Exchange Commission on May 13, 2005. |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.33  |   | Amendment Number Two to  Credit Agreement dated June 2, 2006, incorporated by reference to  registrant’s current report on Form 8-K, as filed with the Securities  and Exchange Commission on June 6, 2006.                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.34  |   | Amendment Number Three to  Credit Agreement dated December 15, 2006, incorporated by reference to  registrant’s current report on Form 8-K, as filed with the Securities  and Exchange Commission on December 21, 2006.                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.35  |   | Letter of Intent dated  January 12, 2007, incorporated by reference to registrant’s current  report on Form 8-K, as filed with the Securities and Exchange Commission  on January 19, 2007.                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.36  |   | Change of Control  Agreement between 155 East Tropicana, LLC and Gary A. Gregg dated  March 23, 2007, incorporated by reference to registrant’s Form 10-K as  filed with the Securities and Exchange Commission on April 2, 2007.†                                                                                                   |

 

106

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| 10.37  |   | Change of Control  Agreement between 155 East Tropicana, LLC and Deborah J. Pierce dated  March 23, 2007, incorporated by reference to registrant’s Form 10-K as  filed with the Securities and Exchange Commission on April 2, 2007.†              |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                               |
| 10.38  |   | Change of Control  Agreement between 155 East Tropicana, LLC and Kim Tyler dated March 23,  2007, incorporated by reference to registrant’s Form 10-K as filed with the  Securities and Exchange Commission on April 2, 2007.†                      |
|   |   |                                                                                                                                                                                                                                                               |
| 10.39  |   | Change of Control  Agreement between 155 East Tropicana, LLC and Rick Newman dated  March 23, 2007, incorporated by reference to registrant’s Form 10-K as  filed with the Securities and Exchange Commission on April 2, 2007.†                    |
|   |   |                                                                                                                                                                                                                                                               |
| 10.40  |   | Employment Agreement  between 155 East Tropicana, LLC and Michael J. Hessling dated  October 31, 2006, incorporated by reference to registrant’s  Form 10-Q, as filed with the Securities and Exchange Commission on  November 13, 2006.† |
|   |   |                                                                                                                                                                                                                                                               |
| 10.41  |   | Employment Agreement  between 155 East Tropicana, LLC and Gary A. Gregg dated October 30,  2006, incorporated by reference to registrant’s Form 10-Q, as filed with  the Securities and Exchange Commission on November 13, 2006.†        |
|   |   |                                                                                                                                                                                                                                                               |
| 10.42  |   | Employment Agreement  between 155 East Tropicana, LLC and Deborah J. Pierce dated February 1,  2005, incorporated by reference to registrant’s Form 10-K as filed with the  Securities and Exchange Commission on April 2, 2007.†                   |
|   |   |                                                                                                                                                                                                                                                               |
| 10.43  |   | Employment Agreement  between 155 East Tropicana, LLC and Kim Tyler dated October 27, 2004,  incorporated by reference to registrant’s Form 10-K as filed with the  Securities and Exchange Commission on April 2, 2007.†                 |
|   |   |                                                                                                                                                                                                                                                               |
| 10.44  |   | Bonus Agreement between  155 East Tropicana, LLC and Deborah J. Pierce dated November 19, 2007.*†                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                               |
| 31.1   |   | Certification of Deborah  J. Pierce under Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                               |
| 31.2   |   | Certification of Neil G.  Kiefer under Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                               |
| 32.1   |   | Certification of Deborah  J. Pierce pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                               |
| 32.2   |   | Certification of Neil G.  Kiefer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                   |

----

| *      | Filed herewith                              |
|--------|---------------------------------------------|
|   |                                        |
| † | Executive compensation  plan or arrangement |

 

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